What Is Equity In A Home

When I was in high school I learned about Rocks, and formulas that I haven’t the use it, I’m still waiting for the perfect time to use my Trignometry formulas

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1. Equity is the difference between the market value of your home and the amount you owe to the lender of your own
– But its basically how much your house is worth – how much you still owe on it

For example:
– I bought a house in Florida and it cost 300k, I’ve paid down 50k ( and owe the bank 250K) – current equity is 50k
– 5 years later I’ve paid an additional 50k
– From that point of my equity in the property is $100k while I still owe the bank 200k

Tip: For example when graham makes those videos saying he buys a house for $0 a month and deducts the money that goes towards equity. It’s because basically that part of the money is stored in the value of the house. And since real estate appreciates its good asset to hold. But you’re still the bank and the market could change.

2. Now if you ever noticed this also applies to a Refinance
– When your home appreciates in value over time
– And if you refinance it, the bank pays you the difference in the appraisal in cash or you can put it towards equity

For example:
– Let’s say that home I got in Florida for 300k, and I’ve built up 100k equity and only owe the 200k
– Let’s say the home is not worth around $500k ( the real market in my area exploded and google just became the neighbor)
– Now I wanted to, I could continue to pay my loan off in full or I could refinance my home for its new market value of 500k

Here is what happens:
– This is going to restart the payment schedule
– But I’m also going to get an additional 200k in cash if I want to ( new loan)
– Basically the math this: I bought for 300k, I have 100k in equity, and owe the bank 200k
– House is worst 500k now: so the bank can refinance the home for me, give an additional 200k which includes my equity ( and my new loan is for

With that money:
– Is obviously going to come to a new higher mortgage
– But I can also use to go buy some more real estate
– And build up some passive income

Tip: Although this is attractive, you have to make sure you can afford the new Mortgage, and understand that this works on the way down. If google moves and the value drops back 300k, you still have a 500k loan.

3. What should you do with Equity:
– Different people do different things
– If your more conservative you do nothing
– If you are riskier you can borrow against it
– If you’re bad with money, you borrow the money to buy liabilities ( weddings, vacations, cars, and all that stuff)

For example:
HELOCs: home equity Line of credit: where the bank gives you a line of credit based on your equity in the house. They make a ton of money and also have your house as collateral. So if they call your loan, they could potentially foreclosure on you

Get a second mortgage on your house: that way you get some extra cash also. But then it’s just another payment you have to worry about. If you don’t pay they can take your property ( usually a lean on your house)

Cash-out refinances: which I already told you about.

4. Overall:
– The way I see is simple, once your house is paid off, your cost of living is basically super low ( if you want to sell and live somewhere cheaper great but don’t leverage that)
– Now you’ll have a lot more free income to go buy more of the things you want ( without having to risk your house)

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*Some of the links and other products that appear on this video are from companies in which Tommy Bryson will earn an affiliate commission or referral bonus. Tommy Bryson is part of an affiliate network and receives compensation for sending traffic to partner sites. The content in this video is accurate as of the posting date. Some of the offers mentioned may no longer be available. I’m an Accountant but I’m not your Accountant, always review information with your Accountant/CPA and your Financial Advisor.

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