When you make a down payment on a home, the amount of the payment determines your equity, or the percentage of the property which you actually own. The more you put down, the greater your equity.

As you pay off the principal on your mortgage, your equity in the house increases. When your mortgage is fully paid, your equity is 100%. The house is yours free and clear.

The value of a house changes continually - and so does your equity, or ownership share, for as long as you have a mortgage. The value of your home, or any property, can be set in several ways.

Market value is the price you pay when you buy a home. It's what you, as the buyer, are willing to pay. A house built in a certain style, or in a prestigious neighborhood, will often command a higher price. And a house in a booming area may sell for tens of thousands of dollars more than essentially the same house in a depressed or undesirable location.

Appraised value (sometimes called fair market value) is what a real estate appraiser says your house is worth. The appraisal is based on the selling prices of similar houses in the area, as well as subjective judgment. So two appraisers may value the same house somewhat differently.

The appraised value doesn't dictate the market value. But many appraisers are also real estate agents, so there's usually a strong correlation.

Assessed value is assigned by the local tax assessor and is the basis for your real estate taxes. There can be a large difference between assessed and appraised value, depending on how recently the assessment was done and the standards used in your community.

Often a house is reassessed when it is sold or remodeled. If you believe the assessment of your house is too high, you can appeal it to your local government on what may be called grievance day. Be prepared to show the assessments of comparable houses and to point out shortcomings the assessor might have overlooked, which could reduce its value.

Property values change regularly, sometimes dramatically. If interest rates are high and the economy is sluggish, people don't buy as readily as they do when rates are lower. If you must sell during a real estate slump, you may have to settle for less than you paid, which reduces the value of your investment.

Neighborhoods change as well, reducing the value of individual properties. Sometimes it's the intrusion of a superhighway or an airport. Or it may result from changing employment patterns, a downturn in the economy or new construction elsewhere.

While you can't prevent change, many experts advise buyers to consider the location of homes they're interested in as carefully as they consider the homes themselves.

Improvements can be a real asset when you want to sell. Modern kitchens and bathrooms often pay for themselves by increasing the market value of your home. So does a fireplace. But you may have a harder time getting back the installation cost of a swimming pool, sauna, or converted garage.

And if improvements make your home overpriced for the neighborhood, it may be harder to sell at a price that reflects what you invested.

Local governments and condo and co-op associations often have strict building and zoning rules that govern additions and renovations. There may be a fee, based on the estimated cost of improvements. And you'll have to get approvals and permits, schedule inspections for electrical and plumbing work and get a certificate of occupancy. 

You may also be able to make money by renting your home. The rent is taxable income, but you may be able to deduct the cost of improvements up to certain limits. You can also rent out a second home, but special tax rules apply to how often you may use it if you want to deduct expenses. You'll want to consult your tax adviser or other expert on the best way to handle rental income.