What Is Equity?
Equity is the amount of value you own in property. In other words, equity is the difference between what you owe and what the property is worth in the current market.
In this video example, you have a house worth $300,000 today and you owe your lender $200,000. Your equity would be $100,000.
If the house is valued at $500,000 in five years, and you still owe $150,000 your equity would be $350,000.
Equity grows as the property value increases or if the amount you owe your lender decreases. Since your lender’s loan doesn’t go up over time, your equity will rise if the property value goes up.
Equity in a home can be used as collateral for loans, and, as a result, equity can become a key financial asset over time. Treat it wisely.