Home equity loans give a homeowner the ability to borrow a lump sum against their home equity. Homeowners have the ability to use their home equity as collateral on a lump-sum loan from a lending institution. This may be done on a paid-off home or on one with an outstanding first mortgage. People sometimes use these to pay for large expenses such as their children’ s college, or as a debt consolidation tool. When used for debt consolidation, a homeowner will take out a large loan against the equity they have in their home and use it to pay off debts to credit card companies and other creditors. Continue reading...
Home equity is a notional amount that a person owns at any given time, which is computed as the market value of a home minus any remaining principal repayments on a loan. Home equity is an asset on a person’s balance sheet, and can be used as as leverage for additional loans or lines of credit. A person’s home equity is the amount in their home which is “paid off.” It can be computed by taking the fair market value of a home and subtracting the amount of principal, if any, that still needs to be repaid on a mortgage loan. Continue reading...
Much like a Reverse Mortgage or Second Mortgage, a HELOC gives homeowners the ability to convert their home equity into cash. A HELOC is a line of credit secured by the equity in your home. Homeowners can choose when to use the funds, and there are repayments due according to a schedule in the contract. It functions as a revolving line of credit, similar to a credit card with large limits. Some people find themselves interested in a HELOC if they have a large balloon payment due on a loan, perhaps even their home mortgage loan. They are also sometimes used as a debt consolidation tool to pay off credit cards and other outstanding debts (but, for this, fixed-rate home equity loans are more popular). Continue reading...
A home mortgage is a long-term loan for the purchase of a home, secured by the value of the home itself. Banks as well as mortgage companies make mortgage loans to consumers and charge an interest rate for the duration of the loan that may be fixed or variable. Mortgage loans generally last for between 15 to 30 years, and they are constructed so that paying off a home can fit into a person’s budget while a bank or lending institution collects interest on each payment. Continue reading...
Mortgage Equity Withdrawals (MEWs) may effectively be a withdrawal when viewed in a balance sheet, but they are actually loans that use the equity in a home as the collateral. These are also known as home equity loans. A full liquidation of equity through such a loan is a reverse mortgage. When a homeowner has paid off their home, they have a lot of equity and collateral to work with if they would like to get some liquidity (money) out of a hard asset. Continue reading...
A reverse mortgage is basically an annuity paid for with home equity. In a reverse mortgage, instead of paying to for your home, you’re getting paid for your home. It is considered a loan, but it does not have to be repaid, except by the proceeds from selling the home. Older Americans who need the income and aren’t concerned about their heirs getting their house might apply for a reverse mortgage. It is also known as a Home Equity Conversion Mortgage (HECM). Continue reading...
Appraisal Fraud is the intentional misrepresentation of the value of a home using an appraiser’s statement. Appraisals are necessary for large loans and real estate transactions, and appraisal fraud is common. Fraud can be committed in this manner by the appraiser or by a person falsifying an appraiser’s statement. A common example would be overstating the value of a home so that a borrower can get a larger home equity loan. Continue reading...
In contrast to the term “home owner,” home debtor is reserved for those who will seemingly never be able to pay off the mortgage(s) on their home, or who have already defaulted. Most Americans live in homes that they pay on, but are still primarily owned by the bank that loaned them money. Banks have insurance to protect them against mortgage defaults. Home mortgage loans are the primary way that Americans by homes today. Continue reading...
A home inspection is performed by a certified home inspector to determine the condition of a property and to find out if there any safety of compliance issues that the home or property may have. Home inspectors are typically hired by real estate professionals and homebuyers when a home is on the market. It is not required except for FHA loan termite inspection requirements, but it is always advisable for a potential home buyer. A home inspection is not to be confused with a home appraisal. Continue reading...
Refinancing a mortgage means to get a new mortgage agreement with a different interest rate. If the prevailing interest rate environment has changed, or if a person’s credit history has strengthened since signing the original mortgage agreement, a homeowner might benefit from refinancing their mortgage with a new arrangement. The bank or lending institution would effectively pay off the first mortgage with the new one, and give the client a different interest rate or mortgage term (length) or monthly payment amount. Continue reading...
Appraisal is a valuation conducted by a certified professional to assess the value of property, especially real estate. Appraisals are an important service in the real estate industry in particular. Where mortgage loans are being taken out from banks, including original mortgages, refinancing, home equity loans and lines of credit, as well as in business and estate valuations, the property appraisal will play an important role. Continue reading...
IRS Link to Form — Found Here The home office expense deduction allows people who work from home to take a tax deduction reflecting the loss of square footage in their home for the purpose of doing business there. The space must be used exclusively for doing business on a regular basis and it must be the principal place of business, not just a place to work outside of the actual office. Many people fail to file for the home office expense deduction because they believe it will be more trouble than its worth or that it may even trigger an IRS audit of their reporting. Continue reading...
The Equity Multiplier is a number used to compare companies, arrived at by dividing total assets by owner’s equity, and it gives an idea of what proportion of the company’s assets have been financed through equity vs debt. In general a low Equity Multiplier is a good sign because it means that a higher proportion of equity has been used to acquire assets, as opposed to funding assets with debt. However, the absence of significant debt could mean that the company lacked the credit rating to issue debt or take out loans. Continue reading...
Corporate equity is retained earnings plus common shares outstanding. On a corporate balance sheet, the retained earnings and the outstanding common stock capitalization combined would be considered the corporate equity, also called shareholder’s equity / owner’s equity. Of the total corporate equity, the portion representing common stock equity is only the capital raised through the issuance of shares in an IPO (initial public offering), where payment for those shares was paid to the company. Subsequent trading in those shares does not affect the common stock equity on the company books. Continue reading...
In the world of finance, private equity is a relatively new industry whereby private companies finance other businesses through direct investment, often in exchange for equity in the company and in some cases, decision-making capabilities. Private equity companies generally use capital of the principals or of high net worth investors to strategically invest in growing companies that need growth capital or seed capital to expand operations. Continue reading...
In the standard accounting equation, when all company liabilities are subtracted from company assets, the remainder is called shareholders equity. What this means is that in the event that the company were liquidated, all debts would be serviced first, including bonds issued by the company, and the remaining balance would be divided amongst shareholders. If a company has a respectable debt-to-equity ratio, it can improve the appeal of a company’s stock and lead to a higher market price for the shares. Continue reading...
Return on Equity refers to the return on shareholder’s equity, which is like looking at the compounding effects of profits. Shareholder’s equity, in the standard accounting equation, is the amount of assets and retained earnings in a company over and above the company’s liabilities. Return on Equity is a ratio which divides the net income of a company by the total shareholder’s equity in a company, which is effectively looking at the profitability of the profits of a company. Continue reading...
People work out of their homes more an more as telecommuting and remote work becomes easier to manage and more affordable for some companies. Some people use the term “home office” to loosely refer to the fact that they work primarily from their home, while other people have an actual office space in their home which is used solely for business purposes. In the latter case, someone can apply for a home office expense deduction on their taxes. Continue reading...
Also known as ‘leverage,’ the debt-to-equity ratio indicates the relative proportion of a company’s debt to total shareholder equity. Given that debt is looked at relative to shareholder equity, the debt-to-equity ratio is often given greater consideration than the debt ratio for determining leverage and risk. Similar to debt ratio, a lower debt-to-equity means that a company has less leverage and a stronger equity position. Continue reading...
An equity or security generally refers to an individual position owned within a portfolio. An equity generally signifies some level of ownership in a corporation. When a person has ‘equity in a company,’ it generally means they own some portion of it and have a claim on the company’s value. An equity is another way of referring to a stock, which also represents a shareholder’s stake in a company. A security is a broader term, which refers to an instrument of ownership. Stocks are considered securities, but fixed income or debt holdings can also be labeled securities within a portfolio. Continue reading...