what is equity in property

Home equity refers to the portion of a homeowners property that they own outright, which is the difference between the homes fair market value and the outstanding balance of all liens on the property. It is an important financial tool and one of the greatest financial benefits of owning a home. Homeowners acquire equity in their home from two sources: they purchase equity with their down payment and the principal portion of any payments they make against their mortgage, and they also benefit from a gain in equity when the value of the property increases. Equity can be used to pay for home improvements, consolidate other debts, plan for retirement, or even purchase a new home. Home equity is not liquid, but homeowners can use equity extraction via loans, at favorable, and often tax-favored, interest rates, to invest otherwise illiquid equity in a target that offers higher returns.