Home equity is the difference between the property’s market value and the amount owed against it.
Example
If a home is worth approximately $500,000 and the mortgage balance is $350,000, the owner has approximately $150,000 of equity before considering selling costs or other liens.
How Equity Can Grow
- Mortgage principal reduction
- Property appreciation
- Certain improvements
- Additional principal payments
Equity Can Decline
Property values can fall, so equity should not be treated as a guaranteed investment return.
Equity Is Not the Same as Cash
Accessing equity normally requires selling, refinancing, a home-equity loan, or a home equity line of credit (HELOC), each of which may involve costs and qualification requirements.
Homebuyer takeaway: Equity can be an important source of household wealth, but it remains tied to the property until accessed or realized.