What is equity?
Equity is defined as the total ownership you have in a property. In real estate, your equity will be the difference between the actual value of your property and the remaining mortgage balance.
Let’s assume that your property is worth $350,000 and your unpaid mortgage balance is $200,000. Your ownership of the property is $150,000 which is the difference between $350,000 and $200,000. In other words, your total equity in the property is $150,000.
Formula of equity
Equity = Total Assets -Total Liabilities
In this formula, the total assets will represent the percentage of the mortgage you paid off plus appreciation on your property. The total liabilities will represent the remaining mortgage balance on the property.
Benefits of having equity in a house
Your equity in your property can give you an option for refinancing.
The refinancing process allows you to trade your old mortgage with a completely new mortgage with terms and rates that serve you better. Therefore, the equity you built in your house can help you buy other houses through refinancing.
This technique is widely used by rental property investors.
