What is Equity?

Equity, in a financial sense, is a term that takes on different meanings depending on the context. In general, it is best to think of equity as the value of any asset after all debts associated with that asset have been paid off. For most people, large personal assets such as a car or house are considered the owner's equity, because he or she can readily sell the item for cash. There are also less tangible ways to think of equity. For example, if you participate in the stock market and own shares of stock, those shares are equity. You own a piece of the company and if you decide to sell your shares, you can immediately receive money in return.

Equity in Your House

When it comes to your car or house, however, you do not need to own them outright in order to have equity. After all, it takes years to pay off such big-ticket items. In terms of your home, equity is most often defined as the difference between the appraised value of your home and how much of your mortgage you still need to pay off. In other words, if your home is worth $250,000 and you have currently paid $50,000, the balance owed on the mortgage is $200,000. The appraised value of $250,000 minus the balance owed of $200,000 equals the amount of equity. In this case, the equity is $50,000. Over time, the value of your home may increase due to renovations or neighborhood growth, which could also increase your available equity amount.

Equity in Your Car

If you are paying off your car, the same formula applies. The amount of equity you have on your car is determined by the value of your vehicle minus the balance owed. If your car is worth $30,000 and you have paid $10,000, the balance owed is $20,000. Thus, you have $10,000 of car equity. The amount of equity you have at your disposal represents a large part of your financial profile. Once you have built up equity over time, you can use it for a wide range of purposes, lik an auto equity loan online. You may choose to create or expand upon an investment portfolio or simply enhance your lifestyle by purchasing that boat or vacation home you've always wanted. Unlocking your equity can open up a whole new world of opportunities.