Home Equity Loans The Pitfalls Of Releasing The Equity In Your Home
House prices have been rising fast all over the UK over the last couple of years. Many people are experiencing a significant increase in their overall wealth as a result. In the United States, this has been termed the wealth effect with an increase in the value of peoples homes being recognised as creating the confidence among consumers to borrow and spend more money and thus fuel the economy. The very same trends can be witnessed in the UK where people are using the equity in their homes to pay for more and more luxuries.
Basic Concept of Home Equity
The way this works is quite simple. Supposing you take out a one hundred per cent mortgage and buy a home for one hundred thousand pounds. Since you borrowed one hundred thousand, and spent one hundred thousand, you will have a net equity of zero, since your assets (the house) are equal to your debts (the mortgage). However, with increasing house prices, it is common for such a house to be worth say one hundred and fifty thousand pounds after a few years. This will now leave you with a positive equity of fifty thousand pounds, since you...
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