Home Equity

What is Home Equity?

I’m sure you’ve heard these words in various advertisements. “Use your equity to pay down your debt”. “Let your home equity lend a hand”. What is this equity that all these lenders speak of?

There are a few different definitions for equity. The definition that is most important to you is that of HOME EQUITY. Home equity is the difference between your home’s market value or purchase price and your mortgage balance. In other words,

MARKET VALUE or PURCHASE PRICE
– MORTGAGE BALANCE
= HOME EQUITY

Let’s go through an easy example.

1. You buy a house for $100,000.
    
2. You pay a down payment of $20,000.
   (your home equity)
    
3. Thus, your mortgage balance is $80,000.
    
4. 5 years later: You have been making regular payments. Your mortgage balance will be $75,000.
    
5. Also 5 years later: Your neighbourhood has become a desirable place to live. Property values have gone up. The value of your house has gone up to $150,000.

So your home equity is now:

$150,000
- $75,000
= $75,000

ie. 5 years later, your home equity amount is $75,000!

Building up equity should be the #1 goal for homeowners. The more your property value increases, the more equity you have. The faster you pay down your mortgage balance, the more equity you have!

You can use home equity as collateral to borrow money from the bank. This is often done through home equity loans or home equity lines of credit.

Do you have bad credit? You can use your equity to pay down your debt.

The banks might not want to lend if your credit is not stellar. Together we can find a private mortgage lender who will lend to you, based on your equity. And they can offer you a no income verification mortgage.