Understanding Home Equity Credit

By Marcie Geffner - LendingTree

Home equity loans aren't difficult to understand, but homeowners should make sure they know what home equity is, how to calculate home equity, and how home equity credit works before they apply for this type of loan.

What is home equity?
Home equity refers to a homeowner's ownership interest in his or her home, often stated as a percentage of the home's value or a dollar amount.

How is home equity calculated?
To calculate home equity, start with the home's current value and then subtract the total outstanding balance of all loans secured by the home. Home equity is calculated using the estimated current market value, not the price the homeowner paid to buy the home, and the current loan balances, not the original amounts borrowed.

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