Equity
The market value of a homeowner’s unencumbered interest in his or her property. Equity is measured as the difference between the property’s fair market value and the outstanding balance of any liens or mortgages on the property.
- Example : Elle purchases a home for $400,000. She finances $320,000 for the purchase price through a mortgage from Star Bank. Three years later, the house has increased in value to $450,000. Also, the mortgage lien amount on the house has decreased as Elle has made her mortgage payments each month; the current mortgage lien is now $275,000. Elle’s home has an equitable value of $175,000.
