What does the term "equity build-up" signify?

The term "equity build-up" signifies the increase of a homeowner's equity over time. This concept refers to the growing ownership stake that a homeowner has in their property as they pay down their mortgage and as the property's value potentially appreciates. Equity is calculated as the difference between the current market value of the property and the outstanding balance on the mortgage.

As the homeowner makes mortgage payments, the principal balance reduces, which directly contributes to an increase in equity. Additionally, if the market value of the home rises, this also enhances the homeowner's equity. Understanding equity build-up is crucial for homeowners, as it reflects their growing financial interest in the property and can be leveraged for future financing or investment opportunities.