I have been to corporate and cooperative organizations for a couple of meetings and I have seen reactions on some people’s faces, they are confused between the word equity and down payment, I also saw some bright minds using those words interchangeably like they are sure of what they saying. What I want to do is give you simple definitions that can describe those two words. Ready?
WHAT IS EQUITY IN REAL ESTATE?
Equity is the word mostly used in mortgage, it is the difference between the value of the house and the amount you owe the bank or estate developers.
Real Estate Equity = Assets – Liabilities
Assuming you bought a house in Abuja 15 years ago for N250,000 with a 15% down payment (N37,500), you financed the rest (N212,500) with a mortgage loan from a bank at 3% and N1200 monthly payments for 30 years. How much equity do you own now?
Estimate market value: After conducting a real estate market analysis, you find that your house is worth around N370,000 today, 15 years later.
Estimate liabilities using a mortgage: You still owe the bank N61,000.
Real estate equity: N370,000 – N61,000 = N309,000 If you were to sell the house today, this is how much the gross equity of your house would be.
WHAT IS DOWN PAYMENT?
A down payment is money you give to the bank or estate developers so that they can feel comfortable doing business with you.
James O. James