Related Terms: Home Equity, Home Equity Loan, HELOC
In simple terms, equity is the difference between your assets and the cost of liabilities. In terms of real estate, equity is the difference between the current value of your property and the amount you still owe on the mortgage.
Home equity can also be borrowed against, creating a new loan in addition to your mortgage. There are two such types of loans: Home Equity Loan or a Home Equity Line of Credit (HELOC). With the former, you receive the entire sum of the loan at once, whereas a HELOC provides a source of money you can withdraw from as needed. You have the option to take out loans or lines of credits such as these, to finance large-scale renovations, pay medical bills, or for other substantial payments, by essentially using the equity you have already accumulated on the property.
There is a risk of negative equity, something you cannot borrow against. This is when you owe more on the balance of the loan than the current market value of your home. This drop could occur for a number of reasons, such as leveraged buyouts, depreciation of currency, etc.
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