Charlie Marlow
Equity is the value of an asset after any debts associated with that asset are paid off. For example, a home with a value of $400,000 with a mortgage balance of $250,000 has an equity of $150,000. A person’s or family’s net worth is the value of everything they own minus the total amount of their debts.
Depreciation is the reduction of value in an asset such as a car or boat due to age, wear, and tear. It’s not unusual for a car to lose 15% of its value a year, so a car purchased for $40,000 would be worth less than $18,000 in five years.
It is possible to have negative equity in an asset. This happens often with car loans when the amount you owe on your car is greater than its value. The car dealer “pays off” your current loan when you buy a new vehicle. They are actually adding the unpaid loan amount on top of the new car’s cost and you now owe more than the new car is actually worth. This is known as being “upside down” in a car or home.
Find Out More with MyMilitarySavings.com and Finance!
Rachel S
Add comment