What is equity? Do I have any equity?
Equity, in simple terms, is the amount of money you have tied up in an
asset. With regards to property, this is usually the amount you have
paid off on a house, plus any increase in the property value since you
purchased it.
For example:
I have purchased a home for $400,000, paid $50,000 down payment, and
borrowed $350,000 as a mortgage. I now have $50,000 in EQUITY. That
is, my cash tied up in the asset.
Example continued:
5 years after purchasing this home, the
property is now worth $500,000 and my mortgage balance is now just
$300,000 (as I have paid the mortgage down bit by bit over the past 5
years with my monthly payments). Now I have $200,000 in equity. Some
of that equity ($100,000) is earned simply because my property has
increased in value, even though I didn’t use any cash. The rest of the
equity comes from using my cash to pay down the mortgage and from the
down payment ($50,000 plus $50,000)
To calculate your EQUITY, use the following calculation…
“Property Value” less “Mortgage Balance” = “Equity”
Example: $400,000 - $350,000 = $50,000
Example (5 years later): $500,000 - $300,000 = $200,000
Equity can increase and decrease at any time if property values change.
There are 2 typical ways to use this equity. The first method is to
sell your home. Your equity becomes cash in your pocket. However,
with this method, you now have no home, but lots of cash.
The second method is to go to a lender such as Approved Mortgage Inc.,
and borrow money secured by your equity. This is called an Equity
Loan. This way you keep your home and control of your home, but now
you can turn the equity into cash for whatever purpose you need. Many
clients use their home equity to borrow cash to invest in their
business, to pay off credit card debt or to renovate their homes.
Home Equity Loans are simply a way of borrowing money, secured by you
assets (your home equity) to get better rates, and lower payments. The
lenders know that if for some reason you can’t make your monthly
payments, you can still pay the money back by selling your home or
doing a refinance.
Call us today to discuss how we can help you. 403.284.4000
Contact Us
600-602 12th Avenue SW
Calgary, AB
T2R 1J3
Toll Free 877.284.4009
P 403.284.4000
F 403.284.4010
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