Meaning of Home Equity

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Home equity is basically the amount of a property value that is not encumbered by a mortgage. Discover how home equity can increase over someone's life with help from a financial adviser in this free video on home equity and personal finance.

Part of the Video Series: Home Equity & Foreclosure
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Video Transcript

Hi, this is Matt McKillen with Innovative Financial Group. The question posed to me today is what is the meaning of home equity? Home equity is basically the amount of your property value that is not encumbered by a mortgage. To give you an example, if your home is worth a hundred thousand dollars, and you have a first mortgage for fifty thousand dollars on the property, then the difference between the first mortgage and what your home is worth is considered your home equity. So in that example it would be fifty thousand, because you have a loan for fifty. So, depending on how much your property may go up in value or down in value which we're seeing that happening right now in some declining property values. On the upswing, your home equity can actually increase over the life that you own your home as you are paying your mortgage off. So through appreciation your home equity can appreciate, as far as the value of your home, or by paying down your mortgage, even paying it down faster than its scheduled term you can also build home equity that way also. Again, my name is Matt McKillen and I'm with Innovative Financial Group.


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