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Equity

EK-wih-tee /ˈɛkwɪti/

nounC1GRETOEFL

formalbusinessfinance

The value of a property after all debts, such as mortgages, are subtracted; the value of a company's shares.

In real estate, equity is the portion of a property's value that the owner truly owns outright. It's calculated as the market value minus any outstanding loans (like a mortgage).

The story behind the word. The word 'equity' comes from the Latin 'aequus', meaning 'equal, fair, just'. In its legal sense, 'equity' refers to a system of law that provides fair remedies where common law might be too rigid. In finance, it represents the 'fair' or 'just' share of ownership, the part that is truly yours, free and clear of debt. It's about balancing what you own against what you owe to find your true stake.

Word relationships

Net worth (property): Equity is the net worth of a specific asset; net worth is total assets minus total liabilities.

Debt: Equity is the owned portion; debt is the borrowed portion.

Commonly confused with

Value: The 'value' is the total market price; 'equity' is the value minus what is owed on the property.

Word family

equitable (adjective): Fair and impartial; relating to equity in law.

Collocations

home equity
build equity
equity line of credit
equity stake
negative equity

Example sentences

"Over the years, as they paid down their mortgage and the property appreciated, their home equity grew significantly." Building equity is a key benefit of homeownership.
"Many homeowners take out a home equity loan to finance renovations or other large expenses." Home equity can be leveraged.

Memory hook

EQUITY is the EQUAL share of your property that you truly own. Equal share

When not to use

Do not confuse 'equity' with the total value of a property; it's specifically the owned portion after debts.

Fun facts

The concept of 'negative equity' occurs when the amount owed on a mortgage is greater than the current market value of the property.