What is the relationship between equity and mortgage payments?

Equity in a property refers to the difference between the market value of the property and the outstanding balance on any mortgages secured against it. As mortgage payments are made, they primarily contribute to reducing the mortgage balance owed. This decrease in the mortgage balance corresponds directly to an increase in the homeowner's equity, as they own a larger portion of the property.

When the mortgage balance decreases, it means that the homeowner has less debt secured against their property, leading to greater equity. Therefore, consistently making mortgage payments helps in building equity over time.

While equity can also be influenced by other aspects such as market fluctuations and property appreciation, the direct relationship between mortgage payments and equity is best captured by the fact that equity increases as the mortgage balance decreases. Other options fail to capture this fundamental relationship.