Home Equity

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READER QUESTION

Explain what home equity is.

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Bills.com Resident Expert
Dec 12, 2011
BILL'S ANSWER

Home equity is, simply stated, the difference between the appraised value of your home and the amount you owe on all encumbrances on the property. An encumbrance is any debt which creates a lien on your home; the most common type of encumbrance is a mortgage, but many people have other encumbrances, such as home equity loans, judgment liens, or tax liens on their property.

Here is an example of how to calculate your home equity: if your home has an appraised value of $100,000, and you owe $20,000 on your first mortgage, $30,000 on your second mortgage, and have a $10,000 home equity loan, for a total of $60,000 in encumbrances, you would have $40,000 in home equity.

For most American homeowners, the equity in their homes is their largest asset. For this reason, people frequently borrow against their home equity when they need to borrow a relatively large sum of money. The ability to build equity is also a major reason that many Americans feel that buying a home is essential to building personal wealth.

To read more about home equity, I encourage you to read the Bills.com Home Equity Basics page at

Home Equity Basics

I hope this information helps you Find. Learn. Save.

Best,

Bill

www.Bills.com

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