Equity (investing).
In plain English
Equity is the ownership stake you hold in something, like shares of a company or the part of your home you actually own. When you buy stock, you own equity in that company, which means a small slice of everything it owns minus everything it owes. In a home, equity is the home's value minus what you still owe on the mortgage. The simple formula is the same in both cases: equity equals what something is worth minus what is owed against it.
01Why it matters
Equity is the part of an asset that is truly yours, so building equity, in a home or in investments, is how your net worth grows even while you still owe money on other things.
02The math, step by step
Suppose your home is worth $300,000 and you still owe $210,000 on the mortgage. Your equity in the home is $300,000 minus $210,000, which is $90,000. If the home's value rises to $320,000 and your loan balance drops to $200,000, your equity grows to $120,000.
03What this is NOT
Equity is not the total value of the thing you own. A $300,000 home with a $210,000 mortgage gives you $90,000 of equity, not $300,000. Equity is only the share left after subtracting what is owed.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice