Equity & down payment

Equity

The portion of your home you truly own — its market value minus the balance of all loans secured by it. Equity grows as you pay down principal and as the home appreciates.

Sources

What does equity mean?

Equity is the slice of your home you actually own, and it grows two ways: every amortizing payment chips at the principal, and any rise in market value adds to it on top. You can borrow against it with a home-equity loan or HELOC, draw on it in retirement with a reverse mortgage, or cash some out in a refinance. It is also what you walk away with when you sell.

How equity grows

Equity is the home’s value minus what you owe. A $400,000 home with a $300,000 balance has $100,000 of equity, or 25%. It grows three ways: paying down principal, rising home values, and improvements that add value. Early in a loan, appreciation usually builds equity faster than payments, because most of each payment is interest.

Ways to tap it

HELOC — a revolving line of credit, usually variable-rate.

Home-equity loan — a fixed-rate lump sum on top of your mortgage.

Cash-out refinance — a new, larger first mortgage; conventional loans generally cap it at 80% of value.

Reverse mortgage — for owners 62 and older, with no required monthly payment.

Each option leaves less equity as a cushion. Lenders typically require you to keep 15% to 20% of the home’s value untouched.

Frequently asked

How do I build home equity faster?

Pay extra toward principal, switch to biweekly payments, or put more down at purchase — each shrinks the balance sooner. Market appreciation adds to equity on top, though you do not control that. Avoiding cash-out refinances keeps the equity you have built intact.

How can I use my home equity?

You can borrow against it with a home-equity loan or HELOC, pull some out in a cash-out refinance, or — at 62 and older — draw on it with a reverse mortgage. You also collect it as cash when you sell.