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Suppose you purchase a house for
$300,000. You make a down payment of $30,000 and borrow
$270,000. The day you close on your new home, the equity
is the same as the down payment -- $30,000: $300,000
(home's purchase price) - $270,000 (amount owed) =
$30,000 (equity).
Skip to five years later. As a result
of regular monthly mortgage payments, you have paid down
your mortgage debt by $18,000, so you now owe $252,000.
During these five years, the value of your home has also
increased, now being worth $400,000. The equity of your
home is now $148,000: $400,000 (home's current appraised
value) - $252,000 (amount owed) = $148,000 (equity)
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1. House purchase price: |
$300,000 |
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Amount borrowed: |
-$270,000 |
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Down payment/equity: |
$30,000 |
2. Five years later
Amount borrowed: |
$270,000 |
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Principal paid: |
$18,000 |
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Amount owed: |
$252,000 |
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3. House's appraised value: |
$400,00 |
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Amount owed: |
-$252,000 |
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Equity |
$148,000 |
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