Real Estate and Big Purchases — How ownership can grow your net worth over time.
Home equity is the part of your home you truly own: its value minus what you still owe on the mortgage.
Equity rises as you pay down the principal and as the home appreciates. Each mortgage payment acts a bit like forced saving.
Appreciation: An increase in an asset's value over time. Real estate can appreciate, but it is not guaranteed and can fall.
You can borrow against equity with a home equity loan or line of credit, but that adds debt secured by your home.
For many households, home equity becomes a major part of net worth, but borrowing heavily against it is risky if values drop.
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