While reading through big short , I came across this sentence, ‘People with first mortgages had vast amounts of equity locked up in their houses’. What does this mean.
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When you buy a house, you usually do it with some of your money (the down payment) and some money from a bank (a special loan called a mortgage). The difference between the value of your house and the balance left on the mortgage is called equity.
You can’t spend equity directly: to get access to it, you’d have to sell the house, and then where would you live? So those funds are “locked up” in the house itself.
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