What is homeowner’s equity in the property?

Homeowner’s equity, also known as home equity, is the portion of a property’s value that the homeowner truly owns. It represents the difference between the market value of the property and the outstanding mortgage balance on it. In simpler terms, homeowner’s equity is the amount of the property’s value that is not owed to the mortgage lender.

Here’s an example to illustrate how homeowner’s equity is calculated:

Let’s say you own a property with a market value of $500,000, and you still owe $300,000 on your mortgage. In this case, your homeowner’s equity would be $200,000 ($500,000 – $300,000). This means that you have $200,000 of ownership or equity in the property.

Homeowner’s equity can increase in two main ways: through paying down the mortgage principal over time and through appreciation in the property’s market value. As the mortgage balance decreases or the property value increases, the homeowner’s equity grows.

Homeowner’s equity is an important financial asset for homeowners. It can be tapped into through various means, such as home equity loans, lines of credit, or by selling the property. It can also serve as a valuable source of collateral for securing loans or as a form of personal wealth accumulation.