You bought
a house for $200,000 with a down payment of $20,000
and hence borrowed $180,000. The day you buy the house, your
equity is the same as the down payment -- $20,000: $200,000 (home's
purchase price) - $180,000 (amount owed) = $20,000 (equity).
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In
five years later, if you have been making your monthly payments
faithfully, and have paid down $13,000 of the mortgage debt,
you will owe $167,000.
During the same time, the value of the house has increased. Now
it is worth $300,000. Your equity is $133,000: $300,000 (home's
current appraised value) - $167,000 (amount owed) = $133,000
(equity)
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