Equity is the portion of your home you actually own: its current market value minus what you still owe on the mortgage. If your home is worth $400,000 and your loan balance is $300,000, you have $100,000 in equity.
It grows two ways. Every monthly payment chips away at your principal, and any rise in your home's value adds equity on top — you can watch the payoff side of that in action in our amortization guide. Early on, growth is slow because most of each payment goes to interest; it accelerates over time.
Equity matters because it's wealth you can use. Sell the house and it's your proceeds after paying off the loan. Stay put and you can borrow against it with a home equity loan or line of credit, or tap it through a cash-out refinance. Lenders also treat strong equity as a safety cushion, which is why reaching 20% equity on a conventional loan lets you drop private mortgage insurance.