Equity is the difference between a homeowner’s home loan balance and the value of their home. When property values rise or a homeowner pays off a portion of the loan balance, the property owner gains equity. If the property value drops or the homeowner takes out additional loans on the property, the equity drops.
Upside Down in a Home Loan
When a homeowner no longer wants the house, perhaps he is moving or can no longer afford the payments due to a job loss or a rise in the mortgage interest, the natural option is to sell the property and pay off the home loan. In an ideal scenario, the former homeowner will also walk away with a little extra cash.
