- Home equity is one of the most common types of equity that an average person might own. When you purchase land or a home, the value of the property that exceeds the balance on any loans you took out to buy the property is said to be your home equity. For example, if you buy a $200,000 home and borrow $160,000 in the form of a home mortgage, your home equity would be $40,000. As you pay off your mortgage, you will build equity as long as your home retains its value.
- The proportion or value of a company that you own partially or fully may be referred to as equity. For example, if you create your own business, you own 100 percent of the firm's equity. If you accept venture capital to help fund a business expansion, you might have to give a 25 percent equity interest to the venture capital firm. In this case, your equity share would drop to 75 percent. If you were to sell the business to a corporation for $1 million, you would be entitled to $750,000 based on your equity share, while the venture capitalist would get $250,000.
- Some businesses decide to issue shares of stock to investors to raise money to fund business expansions. Each share of stock represents a small share of ownership or equity in the company that issued it. Any security that represents ownership interest can be called an equity. For individuals with brokerage accounts, equity refers to the total value of securities held in the account minus any debt balance.
- "Negative equity" is a term that is commonly used in conjunction with home equity; it applies when the balance of a home mortgage exceeds the value of the home. For example, if you owe $200,000 on your mortgage but your home has fallen in value since you bought it so it is only worth $150,000, you are said to have negative equity or to be "underwater" on your mortgage.
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