Equity basics

While your house may be, above all, a home, it is also an investment of sorts. In most cases, while you should not expect a large return on this investment, it does play another key role: you can borrow against it to pay for other things.

Basically defined, equity is your ownership stake in your house. The following example illustrates this principle: Brenda buys a house for $100,000. She made a $15,000 down payment. The remaining $85,000 was financed through a GMAC Mortgage loan. Many prompt monthly payments later, Brenda has whittled the principal of her GMAC Mortgage down to $40,000. Assuming her house has not decreased in value, Brenda’s equity is $60,000.

Equity can help you finance other purchases. GMAC Mortgage offers several ways to put your home equity to use. With a home equity loan or cash-out refinancing, you can finance a major purchase like tuition or the purchase of a second home. With a GMAC Mortgage home equity line of credit, which is like a credit card with an exceptionally low interest rate, you can fund smaller purchases.

At the most basic level, equity is a form of wealth. Make sure that you use it wisely.