Duration of Equity

• Equity represents your ownership of a financed property. Think of it as the amount you've already purchased: If you have $50,000 equity in a $200,000 home mortgage, you've purchased $50,000 worth of your home. As with any other item you purchase, your equity is yours once it's paid for, unless you default on your mortgage or loan. At that time, any equity you have in your home is lost when the bank forecloses on your loan. Because of this, foreclosure on a property in which you hold a large amount of equity is a larger financial setback than one in which you hold little equity.
  
  

Building Equity

• Because mortgages in the United States are structured with the majority of its interest charges front-loaded into the repayment schedule, borrowers who want to build equity more quickly can contribute additional payments beyond their scheduled minimum payment. Lenders apply overpayment amounts directly to the principal and will help borrowers gain equity in their home or business loan. In contrast, 40-year home loans are starting to become increasingly popular because of the rising cost of new homes. Because of the slow repayment schedule, a borrower builds equity much more slowly than in a traditional 30-year mortgage.
  
  

Equity Financing

• Business owners who need capital to develop a high-risk business opportunity sometimes turn to venture capitalists to finance their endeavors. Many of these agreements are equity financing agreements, in which a business owner receives an investment from a venture capitalist in exchange for a portion of the business' equity. In these cases, business owners lose the portion of the equity in their business to investors when they sign the agreement. If an entrepreneur wishes to regain the venture capitalist's share of the company, he must repurchase it.
  
  

Home Equity Loans

• Homeowners who have equity in their home may choose to use it as leverage for more financing using a home equity loan or a home equity line of credit. These arrangements allow homeowners to exchange their equity for liquid assets. Although homeowners usually maintain their equity in these situations, it's used as collateral to secure the loan. If they default on the loan, they lose their equity. If a home is sold before a home equity loan is repaid, portions of the proceeds from the home must be paid to lenders as part of closing.