What is equity?
Well, let’s say you have a house
(Here’s a lovely representation of one)
Let’s say this house is valued at £100,000. You put a down payment on the house, which is at minimum of 5% so using this lovely house as an example you would have put down 5,000 (5%) and the bank (lender) will put up the other 95% (£95,000), which you’ll begin paying off (the mortgage).
So you’ve moved in and for a couple of years you’ve been paying your mortgage, and after those couple of years you now owe £75,000 from the original value of £100,000. There is now a gap of £25,000 of the money you owe and the value of the house with that £25,000 being your equity in that house. Equity in simple terms is the difference between what you owe, and what its worth, which is also equivalent to your net worth.Equity can also be found in houses in which you pay less than it’s actual value. For example, lets say you bought a house for £200,000, but it’s worth £300,000. Within that house you’ll have an equity of £100,000.
Equity can be used as a home equity line of credit (HELOC), which is a loan where the bank (lender) agrees to lend a maximum amount within an agreed period, but you can use what you like when you like in that period only getting charged interest for the amount you have used. With that line of credit you can take out a second mortgage in a home and continue building your empire in the real estate market.
I hope i explained this well as this is fairly new to me as well. It also important to know that the HELOC will use your equity in the home as collateral, so it’s important to look at the risks before delving into anything head on and plan things out. Hopefully this helped someone looking to buy a home or multiple homes and feel free to check out my other posts on my blog here: https://oukasnat.wordpress.com/
Thank you for reading and I hope you’re having a fantastic day!