Equity is the share of something you own outright.
Why it sounds harder than it is
One word, two rooms, and nobody tells you which room you are in.
On a mortgage statement, equity is what your home is worth minus what you still owe on it.
In anything to do with share markets, equity means ownership in a company.
Underneath they are the same idea: the part that is yours once everyone else's claim is settled. But the two senses turn up in completely different documents, and no one ever says which one they mean. The confusion is not yours. The word was never split in two.
Most glossaries pick the share market sense and move on. The sense you are far more likely to meet first arrives in the post, from a lender.
A concrete Australian example
Illustrative figures. A house valued at $800,000 with $500,000 still owing carries $300,000 of equity.
If the same house is valued at $850,000 a year later and nothing extra has been repaid, the equity is $350,000.
The number moves when either side moves, and only one of the two sides is anything to do with you. Repayments are yours. Valuations are not.
What it is not
- Not cash. Equity in a home is not money in an account, and reaching any of it involves a separate arrangement with a lender, with its own terms
- Not the same as your deposit. The deposit was the starting equity. Every repayment since, and every change in what the place is worth, has moved it
- Not a single meaning. When the word appears beside "shares", "markets" or "portfolio", it means company ownership. When it appears beside "home" or "loan", it means the other thing
- Not the same as net worth. Equity is the ownership in one item. Net worth is every item at once, less everything owed
Related
Your last mortgage statement has both numbers on it, on the same page, without ever printing the word.