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What is Equity?

Equity is ownership in an asset after all debts secured by it have been repaid; for a company it is the residual claim of shareholders, for a property it is value minus mortgage.

In real estate, equity is the share of a property you actually own. If a CHF 1,000,000 home has a CHF 600,000 mortgage, your equity is CHF 400,000. Equity grows as you pay down the mortgage and as the property appreciates.

In a company, equity is the value of shareholders' claim on assets after all liabilities are paid. Listed companies report it as book equity on the balance sheet; the market values it at the share price times the number of shares (market capitalisation).

Equity is the most senior risk capital. Debt holders are paid first; equity owners absorb the first losses but also capture all upside above the debt. This is why equity returns are higher on average than debt returns over long periods.

Example

You buy a CHF 800,000 apartment with CHF 200,000 down and a CHF 600,000 mortgage. Your initial equity is CHF 200,000. After 10 years of CHF 600 monthly amortization and 2% appreciation, equity is roughly CHF 360,000.

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Related terms

Frequently asked questions

What is sweat equity?+

Ownership granted in exchange for work rather than money — common in early-stage startups and family businesses.

How does equity differ from net worth?+

Net worth sums all your assets minus all your debts. Equity refers to ownership in a single asset or company.

Is equity the same as shares?+

Shares are units of equity in a company. Owning shares means holding part of the equity.