Home Equity And Mortgages 101

By Doherty • March 19th, 2011
An icon from the Crystal icon theme.

Image via Wikipedia

Owning your house may seem like a dream for some. However it does not have to remain a dream. You can make it a reality. Are you one thinking of buying your own home? Taking that plunge? Then knowing a good knowledge will help you in the process.

Do you know what a mortgage is? How about home equity? You may need to understand the basics so that you can be equipped to handle the concepts of owning a house and paying for it.

Home equity and home mortgage are two different things. You may need to know these concepts for anyone who is taking the next step in buying a house. What’s home mortgage, you ask? A home mortgage is actually a loan that a person takes out to buy a house.

Typically, most would-be buyers of homes can’t afford to immediately fully pay off a property. Merely because cannot pay the whole amount, they would apply for a loan from lending companies such as banks, etc.

Homeowners would then be paying off the house in small payments which are schemed to take effect in years depending on agreed terms. Of course, with any other loans, interest rates would be applied.

Finding the right lender is beneficial to become able to get the best interest rates for you. It takes usually 25-30 years for homeowners to pay the house off completely.

Think about home equity? What does it mean? Home equity is the accumulated sum of money that has already been paid off against the value of the house. There is a formula to determine your home equity.

The amount of the balance of the mortgage must be subtracted from the current fair market value of your house. In simpler terms, your equity is increased as your mortgage balance is decreased.

Let’s say your house was appraised for an amount of $250,000. $150,000 is owed from your mortgage. Your home equity can be computed to $100,000. People make the most of their established home equity.

They could borrow from it and even utilize the money for home improvements, other investments, and even college tuition.

If they need to take advantage of their home equity, homeowners can undergo the process of home equity loan. This is the secured kind of loan (secured loans are protected by an asset) that has a basis on the equity amount that you have in your home.

You have the option of borrowing the full amount of equity but take into consideration that the house will be considered the collateral for your loan.

Some of these concepts may be hard to comprehend at first, however , you will be able to fully understand all the concepts as you go through the process. Make sure that you understand all the concepts behind your purchase so that you will not be puzzled.

 

Leave a Comment

*

This blog is kept spam free by WP-SpamFree.

« | Home | »