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Simple English definitions for legal terms
home equity
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A quick definition of home equity:
Home equity is the amount of money that a homeowner owns in their home. It's like a savings account that grows as the value of the home increases and the mortgage loan is paid off. For example, if a person buys a house with a loan and pays 20% of the price, then they own 20% of the home and the lender owns the other 80%. As the homeowner pays off the loan, their equity in the home increases. Home equity can be affected by changes in the housing market and the amount of debt owed on the property.
A more thorough explanation:
Home equity refers to the value of a homeowner's ownership interest in their home. It is calculated by subtracting any outstanding liens or debts on the property from its current market value.
For example, if you bought a house for $300,000 with a mortgage loan and have paid off $100,000 of the loan, your home equity would be $100,000. This means that you own one-third (or 33.33%) of the property, while the lender still has a two-thirds (or 66.67%) interest in the house until the loan is fully paid off.
The amount of home equity you have can change over time due to various factors, such as changes in the local real estate market or improvements you make to the property that increase its value.
Having home equity can be beneficial for homeowners, as it can be used as collateral for loans or lines of credit, or as a source of funds for major expenses like home renovations or college tuition.