What does Equity (housing) mean?

The equity in your home is basically the amount which remains after any loan/mortgage that you have has been subtracted from the real market value of the property. On the other hand, you have a negative equity in case all the loans you have secured against your property actually exceed its market value.

Many property owners have to find out the existing equity in their home because they want to sell it, and especially if there is a huge debt against it, the equity is small valued and that would be hardly enough to purchase another property. For example, if your home’s real market value is £190,000 and your loans which have as collateral your home sum up £100,000, that means the equity in your home is basically £90,000.

Consequently, if you sell the home, you have to repay all your debts, and with the remaining £90,000 you have to pull it through somehow, start from the beginning basically.

Other cases when knowing the value of the equity in your home are when you wish to take out a home equity loan. This type of loan borrows you the money up to the value of your equity, which following the above example would mean a loan of maximum £90,000, and that would mean if you default on all loans which have your house as collateral, the property is lost in its entirety.

That is why you always have to carefully consult a financial advisor, in order to be able to make the right decision, and to avoid getting entangled in such irreversible debt situations.