Home equity is simultaneously one of the most discussed and least understood wealth-building mechanisms in America. It's not inherently good or bad — it depends on your rate, alternative uses of capital, and time horizon.
The two ways equity builds
- Appreciation: The market value of your home rises. You control nothing here. Historical US home appreciation: 3–4% real (above inflation) annually over long periods.
- Principal paydown: Each mortgage payment reduces your loan balance. In the early years of a 30-year mortgage, most of the payment is interest — equity builds slowly at first.
The amortization reality
On a $400,000 mortgage at 6.7%: Month 1 payment of $2,590. Of that: $2,233 is interest, $357 is principal. After year 1: you've paid $31,080 but reduced the balance by only $4,500. This front-loading of interest is why early extra payments have such outsized impact.
Extra payment math
🏠 Extra payment equity builder
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