What Is Home Equity Mean

What is home equity. Because I talk about equity so commonly in my videos, I get lots of questions about what it is. It’s very important to understand and makes all the difference in real estate.

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It was not until the late 16th century that a new meaning-one that placed equity in the arena of law-emerged. Perhaps because many of the usages of equity involved legal disputes over rights and claims of ownership, by the turn of the 20th century, the word started being used in another sector: finance. It was at this point that terms such as "home equity" and "equity loan" became common finance terms.

Definition of home equity loan: A loan secured by a primary residence or second home to the extent of the excess of fair market value over the debt.

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A home equity loan enables you to borrow against that value. Because the loan is linked to your house, also called secured, it is safer for banks, and they offer lower interest rates, and higher borrowing amounts than unsecured loans.

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Home equity is roughly comparable to home ownership. The amount of equity one has in his or her residence represents how much of the home he or she owns outright.

Home equity loans offer significant tax savings due to the fact that the interest paid on a home equity loan is tax-deductible. Home equity loans are often used to consolidate other debt with high interest rates (like credit card debt), to finance large expenses (such as college or a wedding), or to purchase other costly items .

Because home equity loans offer multiple terms and repayment options, you can select a home equity loan based on your individual needs. To help you understand how rates, terms and repayment options work, let’s discuss each aspect as they relate to the different types of home equity loans that are available to you.

Home equity is the value of a homeowner’s interest in a home, or the market value minus any loan balances secured by the home.