home equity
The portion of a home's value owned outright — market value minus outstanding mortgage balance.
Example
“After ten years her home equity had grown to $180,000 through payments and appreciation.”
Memory Tip
EQUITY — what you actually own. Grows with payments and market appreciation.
Why It Matters
Home equity represents real wealth that you can access through loans or by selling your property, making it a critical component of long-term financial planning and net worth building. Understanding your home equity helps you make informed decisions about refinancing, taking out loans, or planning for retirement when you may want to downsize.
Common Misconception
Many people assume that their home equity automatically increases every year, but it actually decreases if property values fall in their area or if they take out additional loans against their home. Some homeowners also mistakenly believe that home equity is free money they can access without any costs or consequences.
In Practice
If you purchase a home for 300,000 dollars with a 60,000 dollar down payment and take out a 240,000 dollar mortgage, your initial home equity is 60,000 dollars. After five years of mortgage payments, if you have paid down the loan to 210,000 dollars and your home is now worth 330,000 dollars, your home equity has grown to 120,000 dollars, which you could potentially borrow against or access if you sold the home.
Etymology
From Latin 'aequitas' meaning equal — the equal or fair value of ownership in the home.
Common Misspellings
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