# What is home equity? **URL:** \ **Category:** Factual Questions\ **Created:** [November 19, 2001, 9:49pm UTC](https://boards.straightdope.com/t/what-is-home-equity/94288 "2001-11-19T21:49:29Z")\ **Posts on this page:** 9\ **Page:** 1
**Author:** ![toadspittle](https://avatars.discourse-cdn.com/v4/letter/t/c0e974/32.png) [@toadspittle](https://boards.straightdope.com/u/toadspittle)\ **Post date:** [November 19, 2001, 9:49pm UTC](https://boards.straightdope.com/t/what-is-home-equity/94288/1 "2001-11-19T21:49:29Z")
I’ve been searching for 20 minutes for an answer I already likely know. But no one mentions it! They just tell you how to get a home equity loan. Back up. Before I go further in debt, first tell me: What is home equity? My understanding is that it is the amt. of your house that you actually own. That is, you’ve so far paid off $50,000 of the $150,000 principal on your mortgage, so you can borrow against that $50,000. Or, you’ve paid off your house entirely and it’s what the current mkt. value of your house is. Any help? ---
**Author:** ![Kent\_Clark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kent_clark/32/105_2.png) [@Kent\_Clark](https://boards.straightdope.com/u/Kent_Clark)\ **Post date:** [November 19, 2001, 10:06pm UTC](https://boards.straightdope.com/t/what-is-home-equity/94288/2 "2001-11-19T22:06:05Z")
A little of both, actually. Let’s say you have a house that cost you $100,000, and you took an $80,000 mortgage to pay for it. You immediately have $20,000 in equity. Now let’s say that you still owe $80,000 on the mortgage, but the house has been appraised at $120,000. Magically, you now have $40,000 in equity. Since appraisals aren’t an exact science, most lenders hedge and will only loan you up to 85% or 90% or some percentage of your equity. ---
**Author:** ![Keeve](https://avatars.discourse-cdn.com/v4/letter/k/f07891/32.png) [@Keeve](https://boards.straightdope.com/u/Keeve)\ **Post date:** [November 19, 2001, 10:06pm UTC](https://boards.straightdope.com/t/what-is-home-equity/94288/3 "2001-11-19T22:06:24Z")
Yes, that’s correct. Also: You’ve paid off $50K on the $150K house, but prices have gone up and the house is now worth $175K. So you can borrow against the $75K worth that is not currently acting as security on the first loan. Or: You’ve paid off $50K on the $150K house, but prices have gone down and the house is now worth $125K. So you can borrow against the $25K worth that is not currently acting as security on the first loan. ---
**Author:** ![Kamandi](https://avatars.discourse-cdn.com/v4/letter/k/5daacb/32.png) [@Kamandi](https://boards.straightdope.com/u/Kamandi)\ **Post date:** [November 19, 2001, 10:07pm UTC](https://boards.straightdope.com/t/what-is-home-equity/94288/4 "2001-11-19T22:07:47Z")
Yep, you’ve basically got it, with one small change. the equity you own is the the _current value of your house_ minus the current principal you owe on your mortgage. Say you bought a $100 000 house five years ago and put 10% down. At that time you owed the bank $90k and your equity was $10k. Five years later, you now owe the bank, say, $75k. But the current market value of your house is no longer $100k, it’s now $120k. So the equity that you own is now $120k - $75k = $55k. Not a bad investment of $10k, but it all depends on the market. What if housing values went down? You may end up owing more than the house is worth! ---
**Author:** ![Kamandi](https://avatars.discourse-cdn.com/v4/letter/k/5daacb/32.png) [@Kamandi](https://boards.straightdope.com/u/Kamandi)\ **Post date:** [November 19, 2001, 10:10pm UTC](https://boards.straightdope.com/t/what-is-home-equity/94288/5 "2001-11-19T22:10:54Z")
A triple play!!! And all by posters whose names begin with K 🆒 ---
**Author:** ![Keeve](https://avatars.discourse-cdn.com/v4/letter/k/f07891/32.png) [@Keeve](https://boards.straightdope.com/u/Keeve)\ **Post date:** [November 19, 2001, 10:11pm UTC](https://boards.straightdope.com/t/what-is-home-equity/94288/6 "2001-11-19T22:11:24Z")
> [@](#): > > \*Originally posted by kunilou \* > \*\*Since appraisals aren’t an exact science, most lenders hedge and will only loan you up to 85% or 90% or some percentage of your equity. \*\* True, but it’s a crazy market out there. Other lenders want your business so bad that they’re willing to lend 110% or even 120% of the equity! ---
**Author:** ![toadspittle](https://avatars.discourse-cdn.com/v4/letter/t/c0e974/32.png) [@toadspittle](https://boards.straightdope.com/u/toadspittle)\ **Post date:** [November 19, 2001, 10:15pm UTC](https://boards.straightdope.com/t/what-is-home-equity/94288/7 "2001-11-19T22:15:27Z")
thank you all. very concise, Kamandi. This is why the SDMB rocks. GINAYF (Google is not always your friend) ---
**Author:** ![Kamandi](https://avatars.discourse-cdn.com/v4/letter/k/5daacb/32.png) [@Kamandi](https://boards.straightdope.com/u/Kamandi)\ **Post date:** [November 19, 2001, 10:18pm UTC](https://boards.straightdope.com/t/what-is-home-equity/94288/8 "2001-11-19T22:18:30Z")
> [@](#): > > \*Originally posted by Kamandi \* > **$120k - $75k = $55k** Obviously some voodoo economics going on here. This is why you should always check your math. ---
**Author:** ![obfusciatrist](https://avatars.discourse-cdn.com/v4/letter/o/4af34b/32.png) [@obfusciatrist](https://boards.straightdope.com/u/obfusciatrist)\ **Post date:** [November 19, 2001, 11:02pm UTC](https://boards.straightdope.com/t/what-is-home-equity/94288/9 "2001-11-19T23:02:53Z")
Google can be your friend. First search (terms: finance dictionary), second response: [Mortgage Dictionary](http://www.homeowners.com/dictionary.html) I don’t point this out to be snide, but rather to be snide _and_ help if you have any other unfamiliar terms.