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Home Equity
Definition
Home equity is the difference between your home's current market value and the outstanding balance on your mortgage.
Explanation
Home equity represents the portion of your property you truly own. As you make mortgage payments and property values rise, your equity grows. Home equity can be tapped through home equity loans or lines of credit (HELOCs) for major expenses.
Having at least 20% equity often qualifies you for better refinancing rates and eliminates PMI requirements.
Example
A home worth $400,000 with a $250,000 mortgage has $150,000 in equity. If the market value rises to $450,000, equity grows to $200,000.