Sunday, April 03, 2005
Equity is the difference between the current
market value of a property and the total debt obligations
against the property. On a new mortgage, the down payment
represents the equity in a property.
Equity is the basis for home equity loans. A home equity
loan is a fixed or adjustable rate loan secured by equity in
one's primary residence. The interest paid is usually tax
deductible. Home equity loans are often used for home
improvements or to replace other types of consumer loans
that are not tax deductible and have higher interest rates.
A home equity line of credit is a variation where the bank
provides credit that the borrower can tap by writing checks
or getting an advance.
Equity loan
From Wikipedia, the free encyclopedia.
An equity loan is a mortgage placed on real estate in exchange
for cash to the borrower. For example, if a person owns a home
worth $100,000, but does not currently have a lien on it, they
may take an equity loan at 80% loan to value (LVR) or $80,000 in
cash in exchange for a lien on title placed by the lender of the
equity loan.
Many lending institutions require the borrower to repay only an
interest component of the loan each month (calculated daily, and
compounded to the loan once each month). The borrower can apply
any surplus funds to the outstanding loan principal at any time,
reducing the amount of interest calculated from that day
forward. Some loan products also allow the possibility to redraw
cash up to the original LVR, potentially perpetuating the life
of the loan beyond the original loan term.
The rate of interest applied to equity loans is much lower than
that applied to unsecured loans, such as credit card debt.
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