equity
The value of ownership in an asset or company after all debts and liabilities have been deducted.
Example
“After paying down the mortgage for 10 years, they had built significant equity in their home.”
Memory Tip
EQUI-ty — equi means equal. Equity is your equal share of what's left after debts.
Why It Matters
Equity represents the true value you actually own in something after accounting for what you owe on it. Understanding equity helps you track your net worth and make informed decisions about borrowing, investing, and building long-term wealth.
Common Misconception
Many people think equity means the same as the total value of an asset, but equity only counts what remains after subtracting all debts. For example, a house worth 300,000 dollars with a 200,000 dollar mortgage does not represent 300,000 dollars in equity.
In Practice
If you buy a home for 250,000 dollars with a 200,000 dollar mortgage, your initial equity is 50,000 dollars. After five years of payments, if the home is now worth 275,000 dollars and you owe 180,000 dollars on the mortgage, your equity has grown to 95,000 dollars through both property appreciation and debt reduction.
Etymology
From Latin 'aequitas' meaning 'fairness, equality' — your fair share of ownership.
Common Misspellings
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See Also
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