What does "equity buildup" refer to?

"Equity buildup" specifically refers to the increase in a homeowner's equity over time. This occurs as the homeowner pays down the mortgage principal and as property values appreciate. Each mortgage payment typically consists of both principal and interest; the portion that goes toward paying down the principal increases the homeowner's ownership stake in the property. Additionally, if the market value of the property rises, this also contributes to the overall equity.

In essence, equity is calculated as the difference between the market value of the property and the amount owed on the mortgage. Therefore, as the mortgage balance decreases and/or the property value increases, the homeowner’s equity grows. This concept is crucial in real estate finance, as it represents the financial stake an owner holds in their property, which can be tapped into for loans or realized upon selling the property.