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Monday, September 04, 2006

Basic Terminology: Equity

Equity is the difference between the property value and any outstanding mortgage balances. The Loan to Value Ratio is a good measure of the amount of equity in a property. Basically this is the amount of money the owner has 'invested' or 'saved' in a house.

Equity can be built in many ways. The initial down payment is all equity. Let's assume $10,000 on a $100,000 property. Over the first ten years of ownership the mortgage payments contribute possibly $20,000. Also during this time the property appreciates in value, let's say to $130,000 fair market value. This would mean the owner now has $60,000 of equity in a house worth $130,000 and an outstanding loan balance of $80,000. That is a remaining LTV of 61.5% and an equity percentage in the house of 46.1%.

Read here for some insider tips on how to put a situation like this work for you.

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