Equity

Definition

The difference between your property’s value and the debts secured against it. On paper it is simple; in a refinance, three filters reduce the amount available. The lender uses its own value, often an appraisal, not your estimate. It caps the new loan at 80% of that value. And from the amount obtained, the current balance, the penalty, and the fees come off. Example: a home estimated at $600,000, balance of $350,000. Gross equity is $250,000, but 80% of $600,000 is $480,000; minus the balance, $130,000 of theoretical room remains. If the appraisal comes in at $570,000, the room falls to $106,000, and after a $6,000 penalty and $2,500 of fees, the net cash is about $97,500. That last figure is the one to budget with.