Final answer:
To find the equity in a house that has appreciated at a constant rate, first calculate the current market value by using the formula including the appreciation rate, then subtract the remaining loan principal. This results in the owner's equity, which is a crucial financial asset for many.
Step-by-step explanation:
To calculate the equity in the house after it has appreciated at a constant rate, we need to determine the current market value of the house and then subtract the remaining principal balance of the loan.
The formula to calculate the future value of the house, after appreciation, is as follows:
Future Value = Present Value × (1 + Appreciation Rate)^Number of Years
For this question:
- Present Value = $278,000
- Appreciation Rate = 4.45% or 0.0445
- Number of Years = 7
Hence, the future value of the house would be:
Future Value = $278,000 × (1 + 0.0445)^7
After performing the calculation, let's assume the future value is FV (you would typically compute this using a calculator).
The equity you have in the house is calculated by subtracting the current principal balance of the loan from the current market value of the house:
Equity = Current Market Value - Principal Balance of Loan
With the Principal Balance of Loan being $158,900:
Equity = FV - $158,900
After calculating FV and performing this subtraction, you would have the total equity in the house. This demonstrates how equity can be a significant means of investment and a valuable financial asset.