The term “home equity” refers to how much money has already been paid by the buyer of a house. In order to determine this amount, one simply has to know what the current market value of the property is, and then subtract the mortgage that is yet to be paid from this amount. Following this logic, the more one has paid for a house, the higher one’s home equity is. If there are no other transactions linked with the mortgage of the property, then computing for the home equity is extremely simple. However, if the buyer of the house takes out a second mortgage, then the computation for this becomes a bit more complicated. This is because such an amount will have to be counted against the current fair market value of the property. By doing so, one can be sure of arriving at the correct value.
Increasing one’s home equity can provide a number of benefits to the homeowner. Of course, this means that the homeowner is getting closer to being able to pay for the property. One more thing home equities can be useful for is the approval of loans. Oftentimes, homeowners find that they need a bit of extra money in order to make home renovations or pay for expenses that may come about as a result of building a family. In such situations, they may borrow money against their current home equity. In many cases, it may be possible to request for an amount very close to that of the home equity. It is important to remember, however, that the collateral for such loans is the property itself.
