Indiana State Indy Metro PC Practice Test

Equity in a property refers to the ownership value that the homeowner has in their property. It is calculated as the difference between the property's current market value and any outstanding mortgage debt. The correct statement highlights two important factors that can lead to an increase in equity: making mortgage payments and experiencing property appreciation.

When homeowners make mortgage payments, they reduce the principal balance of their loan, which directly increases their equity. Additionally, if the property appreciates in value—meaning its market price rises over time—this also boosts equity, even without any changes to the mortgage balance. Thus, the value of equity can grow due to both reductions in debt and increases in property value, making the statement about increasing equity accurate in various real estate contexts.