A homeowner has a first mortgage of $42,000, a second mortgage of $25,000, and a home equity loan of $5,000. The total mortgage balance is $79,000. The house was recently appraised for $116,000. What is the equity

Rationale

$37,000 represents the homeowner's equity.

Equity is calculated by subtracting the total mortgage balance from the appraised value of the home. In this case, the homeowner's equity is $116,000 (appraised value) - $79,000 (total mortgage balance) = $37,000.

A ($13,000) YOUR ANSWER

This choice incorrectly suggests that the homeowner's equity is significantly lower than it actually is. To arrive at this figure, one would have to either miscalculate the mortgage balance or the appraised value, neither of which align with the provided figures.

B ($24,000) YOUR ANSWER

Choosing $24,000 as equity fails to account for the full difference between the appraised value and the total mortgage balance. This figure might result from an arbitrary subtraction of mortgage amounts without the correct calculation process, thus underestimating the homeowner's actual equity.

C ($35,000) YOUR ANSWER

While this choice is closer than others, it still miscalculates the equity by failing to consider the entire balance of the mortgages against the appraised value. The correct calculation shows that the equity is $37,000, not $35,000.

D ($37,000) CORRECT

This choice accurately reflects the homeowner's equity, derived from the appraised value of $116,000 minus the total mortgage balance of $79,000. This straightforward calculation confirms that the homeowner retains substantial equity in the property.

Conclusion

Home equity is determined by subtracting total mortgage liabilities from the current value of the home. In this scenario, the correct equity of $37,000 underscores the homeowner's financial position, illustrating the importance of understanding property value versus debt obligations in real estate.

A homeowner has a first mortgage of $42,000, a second mortgage of $25,000, and a home equity loan of $5,000. The total mortgage balance is $79,000. The house was recently appraised for $116,000. What is the equity

$37,000 represents the homeowner's equity.

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