Let's say you put 50k down on a 200k house. You have 25% equity in the home, the bank has 75%. Makes sense, you paid for 25% of the house. As you make payments, you build more equity in the house. After 5 years you've built another 10%, now you have 35% stake in the house. The payment is fixed the whole life of the mortgage (unless you purchase an ARM instead).
Your mortgage debt doesn't go up based on home appreciation, but you don't have 100% stake in a home you only paid 35% of.
Okay, but I think you're now double dipping. Let's take the earlier example, $150K mortgage on a $200K home. Let's assume the mortgage is interest-only to keep things simple, and forget about sale-related costs for the same reason. The value of the house goes up to $250K and I sell it. I get $100K, the bank $150K. There is no 'equity' involved here, it's just a loan.
Our mortgages work the same way.
Let's say you put 50k down on a 200k house. You have 25% equity in the home, the bank has 75%. Makes sense, you paid for 25% of the house. As you make payments, you build more equity in the house. After 5 years you've built another 10%, now you have 35% stake in the house. The payment is fixed the whole life of the mortgage (unless you purchase an ARM instead).
Your mortgage debt doesn't go up based on home appreciation, but you don't have 100% stake in a home you only paid 35% of.
Okay, but I think you're now double dipping. Let's take the earlier example, $150K mortgage on a $200K home. Let's assume the mortgage is interest-only to keep things simple, and forget about sale-related costs for the same reason. The value of the house goes up to $250K and I sell it. I get $100K, the bank $150K. There is no 'equity' involved here, it's just a loan.
Oh, yeah, you're right there. I misspoke.
Thank you for the correction, comrade.