Home Equity
Home equity is the share of your property you actually own: its current market value minus everything you still owe on it. Equity grows as you pay down the mortgage and as the home's value rises, and it can be borrowed against.
Equity is your ownership stake in the home, measured in dollars. If a house is worth 400,000 and the mortgage balance is 250,000, you have 150,000 in equity. It builds in two ways: the principal portion of each mortgage payment lowers what you owe, and any rise in the property’s market value increases the gap between value and debt. A market decline can shrink equity, and it can briefly go negative if you owe more than the home is worth.
Equity matters beyond ownership pride. It is what you can tap with a home equity loan or a HELOC, it determines your proceeds when you sell, and it is the mirror image of your loan-to-value ratio: as equity rises, LTV falls, which is also what lets you drop private mortgage insurance.
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Related terms: Loan-to-Value (LTV) , HELOC Draw and Repayment Period
Source: Consumer Financial Protection Bureau, Owning a home
Last updated . Part of the FinExplained finance glossary .