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Measuring Finances
Credit Cards
Assets vs. Liabilities

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This and That:
Learning Financial Responsibility

But What About Equity?

OK, so not everything you haven’t paid for in full is truly a liability. Many financial institutions lure you in with what’s called a “home equity loan”. In order to understand what this does to your finances, you have to understand what “Equity” actually is. In short, equity is the part of an object that you already paid for and it is a percentile of the current value of the object. For example: You “own” a house with a current fair market value of, say, $150,000 and you had an initial mortgage of $100,000 on it. You’ve now made payments over the last 10 years and your mortgage company sends you a payment schedule that says you still owe $60,000. To calculate the equity you simply take the current value and subtract from it the amount of money you still owe the mortgage company. In this case $150,000 - $60,000 = $90,000. That means that you actually own a $90,000 value out of the $150,000 home. The rest ($60,000) belongs to your mortgage company. 

In relation to the “Asset versus Liability” chapter, the house represents a $150,000 Asset with a $60,000 liability attached to it and your Equity in the object is $90,000.

(read on ...) 

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