What is equity and why is it important?

equity importantEquity refers to the value of a property – usually a house – minus any loans or liens against that property. For example, if you own a home that is worth $200 000 and you have a $100 000 mortgage on it (and no other debts using the home as collateral) you have $100 000 in equity in the home.

Equity is important for a number of reasons. First, it is considered a type of asset. That is, if you need to, you can borrow against the equity in your home. Homeowners interested in debt consolidation loans, for example, often use the equity in their homes to secure the consolidation loan. As well, lenders will consider your equity in a property when offering you a loan. If you have no equity in your home or property, you are less likely to get a great interest rate on a personal loan or personal loan. Therefore, working on paying down your mortgage is important for protecting your financial future.