Real estate equity is a property owner’s financial stake in their home or investment property. It is the difference between the fair market value of a property and the remaining balance owed on the mortgage loan. Equity can increase or decrease depending on market conditions such as home prices rising or the homeowner making improvements to the property.
Factors That Increase Equity
- Increase in home value – Real estate values naturally appreciate or depreciate over time. If the value of the property grows since the time you purchased it, then your equity will increase.
- Partial payments – Paying off a portion of your mortgage loan will decrease the remaining balance owed and increase the equity.
- Home improvements – Upgrading or improving your home may add value, which can increase your equity.
Facts About Equity
- Your equity in a property is yours to withdraw using methods such as refinancing, taking out a home equity loan or a home equity line of credit, or selling the property.
- Equity is the amount you own of your home and is part of your net worth.
- In the event that you need to sell a property before it has appreciated enough to cover the costs of purchase, you could end up with a negative equity—meaning your debt is greater than the value of the home.
In conclusion, real estate equity is a property owner’s financial stake in their home or investment property. It is the difference between the fair market value of a property and the remaining balance owed on the mortgage loan. Equity can increase or decrease depending on market conditions, the homeowner making improvements to the property, and other factors such as partial payments and appreciation. Knowing the amount of equity in a property can be an important tool for home buyers and sellers alike.