Finance Equity

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What’s Finance Equity?

For those trying to take out a loan, the particular multitude of different types of financial loans that are in existence may be somewhat confusing, particularly if an individual is trying to choose what specific loan would properly fit a particular situation. One of the more perplexing concepts to people centers questioning what exactly a home finance equity loan is.

A home finance equity loan is a loan that’s secured by the debtor putting up his or her home as collateral. Because the home is put up since collateral, the interest rates of a home finance fairness loan will be generally much smaller than those interest rates that exist by non-secured loans.

Probably the most common use of a house finance equity loan is for credit card and also bill consolidation reasons. As stated before, the interest charges on a home collateral loan will be very low and, as such, will be a lot more preferable to the interest that is being paid about the accrued debt signifying a number of unpaid credit card credit card debt.

Because a home finance equity loan offers a proper administration solution to escalating financial debt, it can literally save a person from monetary ruin. It also helps acquire ones payments in order because the need to track only one monthly payment vs. numerous always keeps a single at a solid understanding base of where ones finances are at all time.

Remember, a home equity loan may prove worthless is all those zero balance credit cards are instantly run up. People at times assume that the home equity loan eliminates debt. It categorically does not! It just moves the debt to some lower interest area designed to save money over time. Using the home collateral loan to go on a new credit card influenced spending spree will defeat the purpose of the house equity loan and result in even more dire financial situations.

Comments: 40

  1. Leighann April 23, 2013 at 12:00 pm Reply

    I am interested in finding out how much equity did Blackstone invest and how much did they borrow to buy out Equity Office. The terms of the amount borrowed would be great! Please provide links as they would be very helpful.

  2. Agustin April 27, 2013 at 10:46 pm Reply

    If a firm is going to finance a project with 100% equity, which discount rate should it to evaluate the feasibility of the project?

    It wouldn’t be WAAC right since there’s no debt, right? I’m looking for an explanation since I’d like to understand it.

    Thanks in advance!

  3. Tyson May 12, 2013 at 12:20 am Reply

    What kind of businesses can be done in Finance industry ? any country’s market

    suppose if one does MBA in Finance , studies Finance & after getting quite work experience for some years..

    i mean Can someone launch his own firm or type of company in Finance industry ?

  4. Eusebio May 28, 2013 at 2:13 am Reply

    We are refinancing our first mortgage. We have a second which is a home equity line of credit at 7.78% We can probably pay it off in 10 years. Should we roll it into our first and refinance both at 5.20% for 30 years? Would the difference in interest rates offset the extra 20 years of payments?

  5. Reynaldo June 25, 2013 at 9:06 pm Reply

    How does insurance work if a car is totalled in accident, but the car is still finance through a dealership? Would the Insurance payoff the balance owing in the car or just payoff what the car worth? What would happen to the remainder of the finance owing if the car is totalled in accident, but the fault is not in you?

    Thank you.

  6. Ignacio January 28, 2014 at 1:27 pm Reply

    MBA finance fresher in an international computer manufacturing and marketing company. What kind of projects can I be put on? Skill sets that might be required?

  7. Brooks February 21, 2014 at 8:03 pm Reply

    Four years ago, Velvet Purses purchased a mailing machine at a cost of $176,000. This equipment is currently valued at $64,500 on today’s balance sheet but could actually be sold for $58,900. This is the only fixed asset the firm owns. Net working capital is $57,200 and long-term debt is $111,300. What is the book value of shareholders’ equity?

  8. Keith February 22, 2014 at 1:33 am Reply

    Hi. I don’t know whether I should major in business administration or finance. When I say business admin. I mean consulting careers and executives of fortune 500 careers. When I say finance, I mean investment banking, private equity, hedge funds, stock broker, asset management, etc. Which is a better career field to be in? Which pays more in the long run?

  9. Laci February 22, 2014 at 1:33 am Reply

    What are the advantages and disadvantages of forgoing debt financing and equity financing?

  10. Raelene February 22, 2014 at 9:04 am Reply

    Hye,
    Did anyone know which countries that use Equity based for financing?

    The most famous is Debt finance based, but is there any countries which using equity based financing where they have profit loss sharing, sharing of ownership?

    Thank you in advance.

  11. Edison February 28, 2014 at 10:51 am Reply

    In basic terms please
    thanks!!!

  12. Ivory March 3, 2014 at 9:51 pm Reply

    Debt financing is more risky than equity financing, but equity financing is more expensive.

  13. Dorthea March 3, 2014 at 9:51 pm Reply

    Put yourself in the shoes of the management of KATHMANDU (A company that has just recently been listed on the stock exchange through a IPO) today. You need to raise money to build a new factory in South Africa and must choose between issuing debt and issuing equity.
    a.
    What are the fundamental differences between these two options and what are some common methods of raising money through each?
    b.
    Why is debt considered more risky for KATHMANDU ?

    THANK YOU SO MUCH IF YOU CAN HELP ME OUT WITH THIS QUESTION

  14. Fidel March 22, 2014 at 5:05 pm Reply

    The 5 year, canadian mortgage rate is quoted at 5.5% per year with semiannual compounding (ie BEY) Steven buys a home for 200,000 and borrows a 25 year mortgage of $150,000 to finance the purchase with biweekly mortgage payments (ie every two weeks) If the value of home remains the same, what will his home equity value be at the end of the fifth year?

    Any idea? I will give a best answer today!

  15. Chas March 29, 2014 at 5:49 pm Reply

    Can someone please explain to me how home equity loans work?

  16. Kareen April 7, 2014 at 7:25 am Reply

    I am in high school and found out about private equities. What are they? What type of degree am I suppose to peruse? How long will this take? Where should I apply after I’m done? Is it hard work??

  17. Cassaundra April 30, 2014 at 1:02 am Reply

    Hi–
    It’s amazing how quickly you can go from livin’ phat to flat broke.
    My husband and I have $60,000 in home equity mostly from a very large down payment about 6 months ago. And now are about $15,000 in the hole with credit cards at about 10%.
    I think taking out a home equity loan (we are 6% on that one) is a good idea, but don’t know that much about it. Will it damage credit ratings, etc?
    We can pay the bills just fine but don’t like the fact that amex owns our azzes.
    Any advice greatly appreciated. Thanks!!

  18. Shelton May 22, 2014 at 6:48 am Reply

    What is “equity financing” and how are corporations formed?

  19. Kathryn May 23, 2014 at 8:46 pm Reply

    Susan is buying a house that will cost $235000. She will be making a downpayment of 7% and financing the rest over 35 years at 3.3% per year compounded monthly.

    With a monthly payment of $878.11, what would be the outstanding ballance on the loan after 29 years of payments?

    How much equity will Susan have in the house after 29 years of payments? (Assume that the value of the house stays constant.)

    Thank you 🙂

  20. Delmer May 24, 2014 at 7:18 pm Reply

    Hello!

    Here is the problem I can’t solve:
    Northern Pacific Heating and Cooling Inc. has a 6-month backlog of orders for its patented solar heating system. To meet this demand, management plans to expand production capacity by 40% with a $10 million investment in plant and machinery. The firm wants to maintain a 40% debt-to-total-assets ratio in its capital structure. It also wants to maintain its past dividend policy of distributing 45% of last year’s net income. In 2010, net income was $5 million. How much external equity must Northern Pacific seek at the beginning of 2011 to expand capacity as desired?

    I’ve tried different approaches, but I think that I just don’t understand a thing in this problem – unusual for me because usually I know at least where to start from and approximate route to success ))) not this time.

    I would be grateful for the help!
    Thank you!

  21. Brady May 24, 2014 at 9:49 pm Reply

    I wanted to clarify what occurs in a home equity loan.

    Are you taking a loan from the purchase price of the home. For example, if we bought the home in 1990 for 120,000, and now we have $65,000 left to pay, does that mean we can create a loan of the difference? i.e. $55,000?

    OR, is it a loan for the current market worth of the home. Let’s say, the home is now worth $200,000. Does that mean we can now borrow $135,000?

    Is the loan based on the purchase price or the actual current market value?

  22. Orlando May 27, 2014 at 4:31 pm Reply

    im half way through my car finance but want to sell, it is in negative equity, someone said i could hand it back to the finance people and not have to pay anymore but also not recieve anything for it? Could someone explain?

  23. Tyson May 27, 2014 at 5:11 pm Reply

    So im going to college as well is my brother and we currently share one car but obviously that isnt going to work anymore because we are commuting to seperate colleges. We have 2 choices now I can either finance a used car and my brother keeps the 2008 jeep wrangler we have now or we sell the jeep and buy two seperate cars. Unfortunately the jeeps equity is very low and we’d probably have to sell privately. What do you think is the best method to use here??

  24. Leonel May 27, 2014 at 11:53 pm Reply

    In finance when someone is talking about a company’s equity are they talking about Shareowners Equity? or are there any other types of equity, and where would I find it / calculate it?

  25. Kiesha May 28, 2014 at 6:15 am Reply

    I’m trying to find out info on Home Equity Loans. The house I live in was built in the 1960’s. It is already paid off, so it has no mortgage involved anymore. The foundation is still solid, however there are many cosmetic issues I would like to address. My question is, what requirements do I need to have to get a Home Equity Loan and what amount can I borrow from the house to make these updates to the house? Any and all info you can give me would be much appreciated. Thank you in advance for any help.

  26. Leonor May 28, 2014 at 2:18 pm Reply

    ABC Co is all equity financed with $600,000 in stock.
    They expect EBIT to be $73,000.

    What is the cost of equity?

  27. Bailey May 29, 2014 at 3:29 am Reply

    Rita’s corporation had a debt ratio of 44.00%

    1. The debt-to-equity is _____ times.

    2. The equity multiplier is ______ times.

  28. Felecia May 30, 2014 at 3:45 am Reply

    I am seem to be swiming in debt at this time in my life…I would like to secure some money to help me pay off some bills.. I have equity in my house. Is it best to refinance this high interest loan, sell the home and use the profits to pay my bills, or take out a home equity loan? My first instinct is to stay in the house for a few more years beacuse this area is increasing in value.. How safe are home equity loans? Is refinancing wise with poor credit?

  29. Laurence May 30, 2014 at 3:50 pm Reply

    Can you get a home equity loan on a mobile home and 6 acres?

  30. Domitila June 1, 2014 at 4:55 am Reply

    A company must maintain a WACC of 9%. Analysts forecast the after tax cost of debt of 5% and a cost of equity of 11%. What debt-equity ratio must be employed to meet the targeted WACC?

    can some one please break this down for me equation wise. I know the equation but theres a lot that I can’t fill out in it…. help?
    Whats the equation you use?

  31. Kecia June 5, 2014 at 5:53 pm Reply

    Telford Engineers Limited, a medium-sized manufacturer of automobile components, has decided to modernize its factory by incorporating a number of robots. These will cost $20 million and will reduce operating costs by $6 million a year for their estimated useful life of 10 years starting next year (Year 10). To finance this plan the business can raise $20 million by either:
    issuing 20 million common shares at $1 each, or issuing long-term bonds at 14% interest a year, with capital repayments of $3 million a year commencing at the end of Year 11.

    Assumptions for Year 10: the corporate tax rate is 30%;▪ sales revenue and operating profit will remain unchanged except for the $6 million cost savings; and▪ Telford Engineers will pay the same dividend per share in Year 10 and in Year 9.
    Prepare, for each financing arrangement, Telford Engineers’ pro forma income statement including the addition to retained earnings for the year ending December 31, Year 10, and the pro forma long-term debt and shareholders’ equity portion of the balance sheet only on that date.

    Year 6 Year 7 Year 8 Year 9 Year10
    Current assets55675755
    Non-current assets48516564
    Total assets103118122119

    Current liabilities
    Bank overdraft5068
    Accounts payable20272518
    Total current liabilities25273126
    Long-term liabilities30303030
    Total liabilities55576156

    Shareholders’ equity
    Common shares20202020
    Retained earnings28414143
    Shareholders’ equity48616163

    Total liabilities and shareholders’ equity103118122119

    Other information:
    Number of shares issued80808080
    Market share price$1.50$2.00$1.00$1.45

    Summary Income Statements
    Including Addition to Retained Earnings
    For the years ended December 31
    ($ millions)

    Year 6Year 7 Year 8 Year 9
    Sales 152170 110 145
    EBIT 2840 7 15
    Interest expense4345
    Earnings before taxes2437310
    Tax expense121604
    Net income122136
    Less: Dividends paid6834
    Addition to retained earnings61302

    Issuing Long-Term Bonds Option:

    Summary of the Balance Sheet
    As at December 31 Pro Forma
    ($ millions)
    Year 6Year 7Year 8Year 9Year 10
    Current assets55675755
    Non-current assets48516564
    Total assets103118122119

    Current liabilities
    Bank overdraft5068
    Accounts payable20272518
    Total current liabilities25273126
    Long-term liabilities303030300
    Total liabilities55576156Total long-term liabilities0

    Shareholders’ equity
    Common shares20202020
    Retained earnings28414143
    Shareholders’ equity486161630

    Total liabilities and shareholders’ equity103118122119Long-term debt and shareholders’ equity0

    Other information:
    Number of shares issued80808080
    Market share price$1.50$2.00$1.00$1.45

    Summary Income Statements
    Including Addition to Retained Earnings
    For the years ended December 31Pro Forma
    ($ millions)

    Year 6Year 7Year 8Year 9Year 10
    Sales152170110145
    EBIT2840715
    Interest expense4345
    Earnings before taxes24373100
    Tax expense121604
    Net income1221360
    Less: Dividends paid6834
    Addition to retained earnings613020

  32. Hung June 8, 2014 at 10:12 am Reply

    Between 40 thousand and 50 thousand… 5 to 7 year… anyone know of any good rates? and with whom?

  33. Vernita June 8, 2014 at 12:24 pm Reply

    I have about 30K in equity. Like to do some home improvements. Current mortgage each month is 1200.00. How does the loan work in conjunction with the monthly payment? Is it seperate, bundled into the payment, etc? Is there a term to pay off the loan or is it part of my 30 year fixed? Overall would like to know how much more I will be paying over my 1200.00 for the loan each month with current assumptions. Fees to get the loan started? Thank you!!
    It’s pitiful that I’m asking a question and I have people preying on my question with these fairy tale lenders. Give me a break people- did honesty and ethics fly out the window here? Have some humanity

  34. Pedro June 10, 2014 at 9:18 am Reply

    A fire has destroyed a large percentage of the financial records of the Carter Company. You have the task of piecing together information in order to release a financial report. You have found the return on assets to be 12 percent. If sales were $4 million, the debt ratio was 0.30, and total liabilities were $4 million, what would be the return on equity (ROE)?

  35. Larry June 14, 2014 at 1:34 pm Reply

    Okay I know that without specific numbers no one can really answer this question. But I just want to know how much more a monthly mortgage payment will be if a home equity loan is taken out for home repairs. Here is what I know so far: The house is appraised for 208,000. I dont know what the original down payment was or how much the original mortgage was for but I’m just going to guess 188,000. There have been 60 monthly payments of 1400 per month on I am assuming a 30 year loan. I don’t know what the interest rate was, but they want to take out a home equity loan of 18,000 to 28,000 for home improvements. If anyone can help me figure out approximately how much more the monthly mortgage payments would be that would be great. You can email me if you need any more info that can help.

  36. Collette June 17, 2014 at 1:58 am Reply

    I currently started studying Finance at home (Part of a self-improvement thing really)
    I find the book very informative, but it unfortunately lacks the “How to” when it comes to solving exercises.
    Below is one of many exercises I kinda got lost on. I don’t necessarily need a number, just the ‘How to” solve it.
    Thank you.

    Weighted average cost of capital is 15% Tax rate is 34%.
    Cost of equity is 20%, and its cost of debt is 9%. What is the target debt/equity ratio?

  37. Lekisha June 17, 2014 at 12:17 pm Reply

    When someone says they have cash for your home equity loan, what does this mean? Does it mean they will give u the cash for the downpayment of the home (as a loan) or what??? I’m having trouble comprehending….

  38. Willard June 17, 2014 at 12:29 pm Reply

    A firm starts with 100,000 in equity, then sells 20,000 in debt later and uses the proceeds to purchase outstanding equity. What would be the weight in equity debt and more importantly why?

  39. Towanda June 18, 2014 at 12:45 am Reply

    My mortgage is half way paid off and I want to open
    a small home based business (**medical billing business**).The start up costs are low so I only need about $15,000. I was thinking about getting a home equity loan against my coop for the $15,000 to start up my medical billing business. Do u think I’m going in the wrong direction? Is this a wise choice? There is no way I can save the money so I need some kind of loan to start it up. I feel like I may have issues getting a small business loan but am I better off taking the time to do it that way?? Which has lower interest rates; small biz loans or home equity loans??? Please help??

    ****I want to open a home based medical billing business because I have the experiece.I would be willing to take chance because pretty confident I can pay it back. I have 9 years experience in the field.

  40. Sophie June 21, 2014 at 2:28 am Reply

    company A is established with strong financial standing and good growth potential, various buildings in the country. what are 3 WAYS TO RAISE FUNDS PUBLIC MARKET (not private market), and should they issue EQUITY OR BONDS?

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