Equity
Home equity is the portion of your home's value that you actually own — the difference between its current market value and what you still owe on your mortgage. If your home is worth $500,000 and you owe $300,000, your equity is $200,000 (40%). Equity builds through price appreciation, mortgage payments, and home improvements.
Equity is the foundation of homeownership's wealth-building potential. As you pay down your mortgage principal each month and as home values rise over time, your equity grows. Nationwide, homeowners have collectively held trillions of dollars in home equity — often the largest single asset on a household's balance sheet.
You can tap into equity through a cash-out refinance, a home equity loan, or a home equity line of credit (HELOC). However, leveraging equity adds risk: if home values fall, you could become 'underwater' — owing more than the home is worth. This happened to millions of homeowners during the 2008 housing crisis.
Lenders pay close attention to your loan-to-value ratio (LTV), which is the inverse of equity expressed as a percentage. A home worth $500,000 with a $300,000 mortgage has a 60% LTV (and 40% equity). Most lenders require you to maintain at least 20% equity to avoid PMI and to access the best loan terms.
Key Takeaway
Home equity is the portion of your home's value that you actually own — the difference between its current market value and what you still owe on your mortgage. If your home is worth $500,000 and you owe $300,000, your equity is $200,000 (40%). Equity builds through price appreciation, mortgage payments, and home improvements.
Related Terms
Frequently Asked Questions
Make extra principal payments, choose a 15-year mortgage, make biweekly payments (which add one extra payment per year), or renovate to increase value.
Yes. A home equity loan or HELOC lets you borrow against your equity without changing your existing mortgage.
No. Home value is the total market price of the property. Equity is the portion you own free of mortgage debt — value minus what you owe.
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