I bought a house almost one year ago, What is equity?

Question

Where to start or where to go to open an equity on my house?How does it work?
and for what is it good for?
Can I pay my credit cards with it?
What are the good and bad parts about it?
Thanks I know nothing about it can you please help me.Thankssss

Answer 1

If you bought your home just a year ago. You might be surprised that it may not be worth as much as you paid for it.
Carrying debt at the lowest possible rate is smart. However the danger is most people will get a home equity loan and pay off their credit cards and then just run the cards up again. They will do this until they have spent all of the equity in their house and have a lot of credit card debt. Then they are screwed. Home equity loans tend to have a much lower interest rate then credit cards plus you have the added advantage that you can usually write the interest off of your taxes.
There are a ton of services available on the internet for home loans, home equity loans etc etc.
The main thing you want to do is to really understand your home loan, any new loan you get and the terms.
I have friends who are just waking up to the fact that they have signed up to home loans with negative amoritization and they are basically screwed.
Walk carefully. Understand eveything about anything you are going to sign. Talk to a lot of people and take your time. Any decision you make will effect you for a long time.

But if you can pay off your high interest credit cards (without running them back up) with a lower interest tax deductible home equity loan. It more then likely makes sense. Without knowing the details of your current home loan your income your projected income going forward and many other aspects of your financial situtation I would say it would be very difficult to make a call on this.

you might start by just talking with someone at your bank. But you can probably get better rates from someone other then your bank. But the bank is the start of your education.
But get educated before you sign anything. The yahoo financial pages by the way have many excellent articles on these issues.

Answer 2

Equity is actually a little more then what you "own". It can be clearly described as the value of your house less how much you owe. In other words, when, and usually they do, your house appreciates, you actually gain equity in addition to the equity you actually pay for.

You can usually get a loan secured by your equity, and you can usually use it to do just about anything. Common examples are to pay off credit card debt, and make major purchases or home repairs.

The positive of equity lines of credit, is that the rates are usually much lower then signature loans, or credit card finance rates.

The negative is, when you take that equity back out, you no longer technically own anything. So when you go to sell your house, you may not even have any capital gains, even though you sold your house for more then you bought it for.

Whats worse, if you take out a home equity line of credit in a speculative market or a "bubble", your home could quickly depreciate in value, and leave you actually upside down in an appreciating asset, which is a terrible spot to be in.

The final downside is, you will have two seperate payments each month, one for the original mortgage, and the other for the home equity, unless you refinance them both into a bigger loan, at probably a lower rate.

Answer 3

Equity is most easily viewed upon like interest gained from a savings account. The only difference is, you have to pay to access the equity. You can take out a small amount such as a HELOC, or you can refinance the home for a larger amount. Either way, you are paying closing costs to access that equity, so you need to decide if it's really worth it. Equity increases so rapidly that it might honestly be worth it, but if you are in an area where it only goes up a few thousand a year, beware because you might be paying more than the equity gained because of closing costs.

Answer 4

The other answers are correct.
Equity is the amount of the value of the home that you own.
Example: You bought your house one year ago for $100,000 and no down payment.
Your home appraises for $103,000. You've made payments of $800/month for 12 months. Your equity would be $12,600. (800 X 12 = 9600 + 3000 = 12,600)

However, that was an example that assumes that your total payment will goes towards the principle of the loan. I wish it worked that way. The majority (literally, almost all) of the payments you make for the first year go to interest. Go through the paperwork from your mortgage company and see if there's a piece of paper that breaks down year by year, the amount of equity you will have in your home by making the exact payment.

All of this is pointless, of course, if you paid cash for your home!!

Best wishes!

Answer 5

Just to clarify a point. The payments which you make the first several years are mostly interest, and do not contribute much, if anything, towards equity in the house. Most of the equity the first few years is gained by appreciation in the real estate market, not from your monthly payments.

Answer 6

Equity is basically the amount that you already own. You can open a home equity line of credit to pay off credit cards, do home improvement, take a trip, whatever.

Answer 7

Equity is the difference btw value of the property and the mortgage(s)......do you have such a difference in which case you may be eligible for a home equity line of credit (HELOC) .............

Answer 8

let me put it in a simple term..
1. if you bought your house for $250,000.
2.and lets say you had it apraised for $300,000
3.you have $50,000 in equity......

Dont put credit cards, on your equity..Dont put anything against it.
Your house and mortgage will go down in value....................

Answer 9

how much did you put down? how much has your home appreciated? Ask your Loan Officer to get est. value from one of his appraisers, so you know how much you can get.