86.3k views
2 votes
Which term is used to refer to the difference between the current market value of a property and the amount the owner still owes on the mortgage?

a) Property equity
b) Mortgage gap
c) Amortization
d) Home equity

1 Answer

5 votes

Final answer:

The term that refers to the difference between the property's market value and what is still owed on the mortgage is 'home equity'. Fred's home equity would be $20,000 if his house is worth $200,000 and he owes $180,000, while Freda's would be $250,000 if her house is worth that much and she has no mortgage debt.

Step-by-step explanation:

The term used to refer to the difference between the current market value of a property and the amount the owner still owes on the mortgage is home equity.

For example, if the value of the house is $200,000 and the owner, let's say Fred, owes $180,000 on the mortgage, then Fred's home equity is $20,000. This is because equity is calculated as the market value of the house ($200,000) minus what is still owed to the bank ($180,000).

In another scenario, if Freda's house is valued at $250,000 and she owes nothing to the bank, her equity would be the entire value of the house, which is $250,000. Likewise, if Frank's house is valued at $160,000 and he owes $60,000 to the bank, his home equity would be $100,000.

Home equity is often the largest financial asset for many households, with the total value of all home equity held by U.S. households amounting to substantial figures, for instance, $23.6 trillion as of mid-2021 according to Federal Reserve data.

User Mirrana
by
8.2k points

No related questions found

Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.