Glossary
Equity
The slice of your home you actually own — its market value minus what you still owe on it.
Equity grows two ways: you pay down the mortgage principal, or the home's value rises. It is the asset behind every home-equity loan and HELOC — lenders let you borrow against it because, unlike a paycheck, it is already sitting in something they can claim if you default. Most lenders cap combined borrowing at 80–85% of the home's value, so equity is what determines how much you can tap, not just whether you can.
Related terms
- Credit utilization ratio The share of your available revolving credit you are currently using — the second-biggest factor in your credit score, after payment history.
- Lien A legal claim against property that secures a debt — the lienholder can force a sale to collect if the debt goes unpaid.
- Deed of trust A three-party document (borrower, lender, trustee) some states use instead of a mortgage to secure a home loan against the property.
- DTI Debt-to-income ratio: monthly debt payments divided by gross monthly income. Most lenders draw the line at 36–43%.
- Amortization The schedule that splits each payment between interest and principal. Early payments are mostly interest; the balance flips near the end of the term.
- Fixed rate An interest rate that never changes for the life of the loan — your payment is the same every month.