A family purchases a home for $500,000. They make a down payment of 10% of the purchase price and take out a loan for the remaining amount. One year later, the market value of the home has decreased by 10%. Assuming no principal has been paid on the loan, what is the percentage loss of the family's initial investment (their equity) in the home?
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If a household has a mortgage on their property, a 15% decrease in the property's market value will result in a 15% decrease in the household's home equity.
A family purchases a home for $500,000. They make a down payment of 10% of the purchase price and take out a loan for the remaining amount. One year later, the market value of the home has decreased by 10%. Assuming no principal has been paid on the loan, what is the percentage loss of the family's initial investment (their equity) in the home?
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The table below shows four households that each purchased a $500,000 home but with different initial down payments. The table then shows the financial impact after the market value of each home decreases by $50,000.
Household Initial Down Payment Initial Loan Amount Equity After Price Drop % Loss of Initial Equity A $25,000 (5%) $475,000 -$25,000 200% B $50,000 (10%) $450,000 $0 100% C $100,000 (20%) $400,000 $50,000 50% D $250,000 (50%) $250,000 $200,000 20% Based on the data in the table, what is the primary relationship demonstrated between a household's initial financial position and its vulnerability to a fall in property value?