Equity
Also called: home equity
The share of your home you actually own — its value minus what you still owe on it.
A home worth 300,000 with 200,000 still owed means 100,000 of equity. That is the part that is yours.
It grows two ways: by repaying the mortgage, and by the property rising in value. It also shrinks when prices fall, which is the part people forget — a large enough fall can leave you owing more than the place is worth, and that matters if you need to sell or remortgage.
The important caution is that equity is not liquid. It is real value, but reaching it means selling the property or borrowing against it. Someone with substantial equity and no cash is not comfortable; they are asset-rich and one broken boiler from expensive borrowing.
That is why overpaying a mortgage should come after the emergency fund, not instead of it. An overpayment converts flexible money into money locked in a wall.
The same word is used for shares — equities meaning stakes in companies. Related idea, different context: in both cases it is the ownership left after debts.
Words on this page
- Share — A small piece of ownership in a company, including a claim on its profits.
- Mortgage — A long-term loan secured against property — if you stop paying, the lender can take the house.
- Emergency fund — Cash set aside to cover unexpected, necessary and urgent costs, so they do not become debt.
Related terms
Covered properly in Learn.
This term appears in the glossary of The Quiet Fortune, Volume II.