What Is Home Equity?
The portion of your home's value you own outright, equal to market value minus the remaining mortgage balance.
Definition
Home equity is your ownership stake in your property. It starts at your down payment on closing day and builds in two ways: principal paydown (each monthly payment reduces what you owe) and appreciation (as the market value of the home rises). Equity can also shrink if your home's value falls or if you take out additional loans against it. Equity is not cash until you access it by selling, taking out a HELOC, or doing a cash-out refinance. Lenders limit how much equity you can tap, usually requiring you to keep at least 20% in the home after borrowing. Tracking equity matters for PMI removal decisions, refinancing, and planning a future sale.
Example
You bought a home for $350,000 with $70,000 down. After five years of payments, your balance is $265,000 and the home is now worth $420,000. Your equity: $420,000 minus $265,000 = $155,000.