Equity loan - All about
An equity debt or equity loan, also known as a second mortgage, is a such mortgage loan in which the borrower receives cash. The loan is secured by property, real estate he owns.
If a person owns a home worth $100,000, and does not have a mortgage on it, he can take an equity loan of 80% loan to value (LTV) that is $80,000 in cash.
Equity is difference between 1. actual price of home and 2. how much you owe on the mortgage. Look the example below -
Example-
Suppose John buy a house for $100,000. John make a down payment of $10,000 and borrow $90,000. So on the day he buys the house, his equity is same as his down payment amount - $10,000 (Home's purchase price - amount owed = equity, that is $100,000 - $90,000 = $10,000 (equity)).
After five years John is paying his monthly instalments continuously and have paid $10,000 of the mortgage debt, so he owe $80,000. ($90,000 - $10,000 = $80,000)
During this five years, suppose the value of the house has increased to $200,000. His equity now will be $133,000 ($200,000 (home's current appraised value) - $80,000 (amount owed) = $120,000 (equity).
