Equity

Equity is what you actually own of your home. If your home is worth $350,000 and you owe $200,000 on your mortgage, you have $150,000 in equity.

Equity builds in two ways: as you pay down your mortgage principal over time, and as your home's value increases in the market. A rising market can build equity faster than monthly payments alone.

When you sell, equity becomes your profit (minus selling costs). When you refinance or take a home equity loan, your equity is what you're borrowing against.

For sellers, equity is essentially your payday. After you pay off your remaining mortgage and cover selling costs, what's left is your net proceeds: the equity you've built.

For buyers, building equity is one of the primary financial arguments for homeownership over renting. Every mortgage payment (specifically the principal portion) and every increase in market value grows your equity position.

Knowing your current equity position is important before deciding to sell, refinance, or make any major financial decision related to your home.

A homeowner bought their home five years ago for $280,000. They've paid the mortgage down to $245,000. The home is now worth $375,000 in today's market. Their equity is $375,000 minus $245,000, or $130,000. If they sell and pay a 5-6% commission plus other fees, their net proceeds would be roughly in the $110,000–$115,000 range.

"My equity is just the appreciation since I bought."

Equity comes from both appreciation and principal paydown. Even if your home's value hasn't changed, you've been building equity with every mortgage payment that reduces your principal. And even if you've made no principal payments (an unusual situation), appreciation alone increases equity.