Mortgage Equity
In relation to mortgages, equity is defined as the market value of a property less the amount still owed on the mortgage. Property prices are constantly changing. Many homeowners find themselves in the happy situation of living in a property which is currently worth more than they paid for it. In this case, they are enjoying what is called positive equity. Negative equity occurs when there has been a downturn in the housing market and the value of a home has fallen to less than the owners owe on their mortgage.
The levels of equity mortgage payers have in their homes can have broad and significant effects on the economy as a whole. When there is large positive equity, mortgagors tend to feel confident about their economic future and spend more freely. Conversely, when negative equity prevails, mortgage owners tend to tamp down on their spending habits. Apart from the confidence effects alone, home owners can gain actual cash through rises in the value of their home by taking advantage of equity release mortgages.
Equity participation mortgages are also available which give the financial institution a share in any future increases in the value of the home once the home is sold.