I understand the price of the home has gone up since the purchase so there’s let’s say $30k in equity. How are they entitled to this $30k just magically? Does their mortgage balance increase too kind of like they took a loan out?
In: Economics
A mortgage isn’t just the bank loaning you money… a mortgage is the bank loaning you money *with your house as collateral.* If you don’t pay your mortgage, the bank can take your house. They consider this to be a very safe bet, so they’re willing to lend you hundreds of thousands of dollars at a very low interest rate.
If the value of your home goes up, the bank is willing to lend you more money… because they know if you don’t pay it back, they can then take your house.
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