Equity: That interest or value remaining in property after payment of all liens or other charges on the property. An owner’s equity in property is normally the monetary interest the owner retains over and above the mortgage indebtedness. If the property is encumbered with a long-term mortgage, the mortgagor’s equity in the property increases with each monthly principle mortgage payment (not to mention increased value through appreciation).
In the early years of the mortgage, the equity buildup is gradual, as most of the monthly payment is applied to the interest on the loan rather than to the principle. The greater and owner’s equity, the less risk for a mortgagee who lends money based on the security of the property.