Equity (Including Home Equity)

Equity is ownership value net of debt. In a company it is what shareholders hold after liabilities; in your own finances it is the portion of an asset that would be yours if you sold it and settled what you owe on it.

Home equity is the version most people meet first: the property's market value minus the mortgage balance. It grows two ways at once — every payment retires a slice of principal, and appreciation lifts the value the debt is measured against. Your down payment is simply the equity you start with.

That equity can be borrowed against. A home equity loan advances a lump sum at a fixed rate, a HELOC works as a revolving line you draw on as needed, and a cash-out refinance replaces the whole mortgage with a larger one. All three are cheaper than unsecured credit because the house is collateral, and all three carry the same consequence for that reason: missed payments put the home itself at risk.

Specific thresholds matter. Reaching 20% equity is what lets you cancel private mortgage insurance, and lenders generally cap total borrowing at around 80% to 85% of the property's value, so the amount available is well below the equity on paper.

Home equity is also illiquid — reaching it requires selling or borrowing, neither of which is quick or free. And it runs in reverse: when values fall below the loan balance, equity goes negative and the owner is underwater, unable to sell without bringing cash to closing.