Understanding Home Equity

download 3 - Understanding Home Equity

You may have heard of this term but do you really understand this? Well, to give more enlightenment about the term “home equity”, it basically means your share of the value of your home. When you decide to buy a home, most of the time, you only pay a small part of the whole value upfront and you just let a lending company or a bank to pay the remaining amount so that the property is already in your name. But take into consideration that in the actual sense, it is more of the banks’ than yours as you probably pay just 20% of the full amount of the house which means 80% of it is from the bank’s money. That 20% you pay is your home equity. It is your only share until you will start paying the bank in a monthly basis or depending on what is agreed so that your home equity will increase.

You can truly say the home equity of a certain property is fully yours if you have completely paid the full amount of the house like you don’t owe any money from the said bank anymore. Now, what is the advantage of using home equity and not just go directly to any lender to borrow the amount needed? Home equity is actually considered an asset. It is also kind of your savings and you can use it to file another property mortgage. Take note that every payment you made to the concerned bank, your home equity increased, and it goes without saying that your “savings” also increased.

As every situation has disadvantages as well as advantages, the disadvantage with a home equity used against a second property mortgage is both the first property as well as the second one can be repossessed if you will not be able to keep up with your monthly obligations. By using a home equity to file for a second mortgage, it is like you are putting your home as collateral for the second mortgage as that is where your home equity is saved. Therefore, if you will not be able to pay your monthly dues, the bank where you owed the money from will foreclose the property you used as collateral. It is therefore advised to really give it a deep thought before availing this method as you might end up with no money and no property. 

Yes, you really need to give this a deep thought if you are planning to buy a property right now, like if you find Kota Kemuning condo for sale or apartment for sale in Subang Jaya attractive. But then again, if you are still not up to it, you can always just choose to rent for the time being. The condo for rent Damansara Utama might be perfect for you. Click here to find out more.

Buying a home is not something you can just do on a whim. It has to be really planned well!