Home equity

Home equity

Home equity is the value of a homeowner's unencumbered interest in their property, i.e. the difference between the home's fair market value and the unpaid balance of the mortgage and any outstanding debt over the home. Equity increases as the mortgage is paid or as the property enjoys appreciation. This is sometimes called "real property value" in economics.

Technically, home equity has a zero rate of return and is not liquid. So-called "home equity management" is the process of using equity extraction via loans, at favorable and often tax-favored interest rates, to invest otherwise illiquid equity in a target that offers higher returns. This can be considered a form of arbitrage.

Arbitrage is in essence borrowing money at one rate and earning a higher rate elsewhere. In home equity management, home equity is reduced, and the owner's liability is increased. Therefore, safety and liquidity are essential to preserving nominal home equity. Consequently, the process excludes all equity extraction that is actually spent or invested in non-liquid ways.

Home equity is frequently used as a form of collateral to obtain loans such as HELOC and home equity loan. Interest paid on such loans can be partially tax deductible in the United States and other countries.

ee also

* Equity
* Ownership Equity
* Home Equity Loan

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Look at other dictionaries:

  • home equity — The current market value of a house minus how much is owed on it. A home equity loan borrows against this amount. Category: Real Estate & Rental Property → Homeowners Nolo’s Plain English Law Dictionary. Gerald N. Hill, Kathleen Thompson Hill.… …   Law dictionary

  • home equity — UK US noun [U] ► FINANCE, PROPERTY the amount of money that someone would receive if they sold their house, after paying what remains of the mortgage: »Do you purchase a loan in the UK? In the US, you take out a loan …   Financial and business terms

  • Home Equity — The value of ownership built up in a home or property that represents the current market value of the house less any remaining mortgage payments. This value is built up over time as the property owner pays off the mortgage and the market value of …   Investment dictionary

  • home-equity — adj. Home equity is used with these nouns: ↑loan …   Collocations dictionary

  • home equity — noun The monetary value of a home less the value of any encumbrances, such as liens or mortgages …   Wiktionary

  • Home Equity Protection — generally comes in the form of a contract that pays the buyer of protection if a particular home price index declines in value. The buyer of protection is typically a homeowner that wishes to protect the value of their home [cite web… …   Wikipedia

  • home equity loan — ➔ loan1 * * * home equity loan UK US noun [C] FINANCE, PROPERTY ► a loan that uses your home equity as a guarantee that the money you borrow will be paid back: »We purchased a fixed rate home equity loan with a regular payback period …   Financial and business terms

  • home equity loan — see loan Merriam Webster’s Dictionary of Law. Merriam Webster. 1996. home equity loan n …   Law dictionary

  • home equity line — n: home equity loan at loan Merriam Webster’s Dictionary of Law. Merriam Webster. 1996 …   Law dictionary

  • home equity line of credit — home equity line of credit: home equity loan at loan Merriam Webster’s Dictionary of Law. Merriam Webster. 1996 …   Law dictionary

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