Equity is the share of a property’s value that is truly yours. You calculate it by subtracting the outstanding loan balance from the property’s market value: a home worth $400,000 with a $250,000 mortgage carries $150,000 of equity.
Equity grows two ways: as you pay down loan principal through amortization, and as the property appreciates. You can put it to work by selling, refinancing, or borrowing against it, though tapping equity adds debt and risk. It’s effectively the mirror image of your loan-to-value ratio — as one falls, the other rises.