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Home equity is the difference between a home’s value and any debt outstanding, such as a mortgage, for which the home is pledged as collateral. Because interest in title to the property is superior collateral, lenders readily grant credit against home equity. After the mortgage itself, the home equity loan and home equity line of credit are the most common products. For the borrower, interest on debt obtained through a reduction in home equity is tax deductible. The typical homebuyer finances a home and starts with home equity equaling the down payment. Home equity can grow through repayment of the mortgage principal and via appreciation of home value. The home is said to be owned free and clear when home equity reaches 100% of the property’s value. When the real estate owned is not an owner’s home, home equity is usually shortened to simply equity. |
