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Chapter 9. Considering Home Equity Loans > What Is a Home Equity Loan?

What Is a Home Equity Loan?

Before you can understand what a home equity loan is, you need to understand the concept of equity. It’s a simple concept, really, and refers to the extent to which you actually own something. In the case of your home, equity is the value of the home minus the amount you owe on your mortgage.

This equity can be looked at as untapped value. If you sold your home, the equity would be cash in your pocket. Suppose your home is worth $195,000 and you owe $140,000 on your mortgage. If you sell the home for $195,000 and pay off the mortgage, you’ll be left with $55,000—that’s your equity.


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