Equity is what you own outright; debt is what you owe. Pay off half your mortgage and you build equity in the house, while the remaining balance is still debt. A simple memory hook: equity grows as you pay down debt.
The core difference
Equity is ownership value left after debts are subtracted, while debt is money owed that must be repaid.
- equity — the value of an owned property or business after debts are subtracted, or an ownership stake in a company: After paying off half the mortgage, they have significant equity in their home.
- debt — money that one person or organisation owes to another: It took her five years to pay off her student debt.
How to tell them apart
Picture a house worth 300,000 pounds with a mortgage balance of 200,000 pounds still owed. The 200,000 pounds owed is debt; the remaining 100,000 pounds of value belonging to the owner is equity. As the mortgage is paid down, debt falls and equity rises for the same property.
The same split applies to businesses raising money: a company can fund itself with equity, by selling shares and giving up part ownership, or with debt, by borrowing and promising to repay it — the choice affects who has a claim on the business and in what order.
