Equity represents ownership. This can be in different things or assets. The opposite of equity is debt which represents money owed, a liability.
Equity can also be defined as our assets minus our liabilities. So how much we own minus how much we owe.
There are different forms in which equity can be interpreted. The include:
- Home equity
- Investment equity
- Business equity
Home equity represents the amount you own of your home.
To work this out simply take your home value minus any mortgage currently owed on the property. This amount is how much you own in your property AKA your equity in your property.
The equity you have in your home will be due to how much you put down as a down payment when you took out your mortgage and how many monthly mortgage repayments have gone towards your capital repayments.
The equity in your home can be used to get a further line of credit by putting down your home equity as collateral. This will make you eligible for cheaper loans but will be very risky as if you fail to make repayments on your new loan you may lose your home through a home repossession.
Investment equity is what a company gives to an investor in exchange for investment funds. These are shares in a business that represent ownership and entitlements to any future profit.
If the business goes out of business then the investors will have some claim on the assets of the business.
Business equity means the difference between the assets in a business minus the liabilities in the business. Assets include things such as cash, the companies assets such as computers, cars etc. Liabilities include things such as company payroll and any loans owed.
Business equity means how much an owner will have left if they sold their company.