
What is a Home Equity Agreement?
In the wake of high inflation, rising interest rates and a slowing economy, cost of living pressures are front of mind for many Australians. Financial stress can be powerfully disruptive, and in...
Equity refers to the to the value of ownership in an asset by calculating the difference between the market value of the asset and the amount still owed on it.
Equity refers to the value of ownership in an asset. It represents the difference between the market value of an asset (like a house) and the amount still owed on any loans or mortgages related to that asset. For example, if your house is worth $800,000, and you still owe $500,000 on the mortgage, your equity in the house is $300,000.
As the name suggests, a home equity loan is a loan given by a lender based on your home’s built up value. Here your property serves as collateral (a form of security) in the case of you being unable to pay your loan.
Suppose the current value of your home is $900,000 with $400,000 left to pay your mortgage. Your equity in this property is therefore $500,000. Lenders typically allow you to borrow up to 80% of the equity amount, meaning that you could borrow up to $400,000 ($500,000 x 0.8) using a home equity loan.
Yes it is possible to have negative equity. Having negative equity means that you owe more on an asset than it is currently worth.
For example, if you took out a mortgage to buy a house, and the market value of the house drops significantly, you might end up owing more on the mortgage than what the house is worth. It's a challenging situation because selling the asset may not cover the outstanding debt, and refinancing or selling might be difficult.
Is now a good time to sell? Talk to a top agent about market performance in your area.
You might also be interested in
In the wake of high inflation, rising interest rates and a slowing economy, cost of living pressures are front of mind for many Australians. Financial stress can be powerfully disruptive, and in...
There's no denying that stepping onto, and climbing, the property ladder has become increasingly difficult for many Australians. Over the past few years, home prices have risen rapidly,...
Is it the right time to sell your house?If you've been flirting with the idea of a new home or gazing at properties you imagine yourself living in, then what would it take to put the cogs in...