Home equity.
In plain English
Equity is the gap between your home's market value and your mortgage balance. It grows two ways at once: every principal payment shrinks the loan, and any rise in the home's value widens the gap from the other side. It can also shrink if prices fall. Equity is wealth on paper until you sell, refinance, or borrow against it.
01Why it matters
Equity is most people's largest store of wealth, and it's the number that decides whether you can drop mortgage insurance, take a HELOC, or walk away from a sale with cash.
02The math, step by step
You bought at $350,000 with $35,000 down. Five years later the home is worth $400,000 and the loan balance is $290,000. Your equity is $110,000: the value minus the balance. $25,000 came from payments, $50,000 from the market, $35,000 was your down payment.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
Equity is not cash. You can't spend it without selling or borrowing against it, and borrowing against it (a HELOC or home equity loan) puts the house on the line for the new debt too.
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