I am completely lost on the concept of buying a home and the selling it before the mortgage is paid. How does this make money/contribute to a new mortgage?
In: Economics
Home equity is the difference between the amount you owe on a mortgage and the value of the house.
Suppose you borrow $200,000 to buy a house, and then you pay off $100,000 into the mortgage. When you sell the house you sell it at $250,000. You still need to pay off the mortgage so that leaves you with $150,000 that you can turn around and contribute towards buying a new house.
That $150k is “equity” that you can get out when you sell the home. As you pay down the mortgage it increases your equity, and as the value of the home increases over time it increases your equity.
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