A plain-English equity glossary

A professional assessment of a home's current market value, performed by a licensed appraiser. Required by most lenders to determine how much equity exists.

The ratio of all loans secured by a property (primary mortgage + any equity products) to the property's appraised value. Lenders use CLTV to limit total borrowing.

The initial phase of a HELOC (typically 5–10 years) during which you can borrow, repay, and re-borrow from your credit line. Followed by the repayment period.

Your total monthly debt payments divided by your gross monthly income, expressed as a percentage. A key qualification factor for lenders — lower is better.

A loan secured by your home that is subordinate to your primary mortgage. Home equity loans are second mortgages. In case of foreclosure, the primary mortgage is paid first.

The legal ranking of liens on a property. Your primary mortgage is in "first position"; a HELOC or home equity loan is in "second position," repaid after the first mortgage in a foreclosure.

A benchmark interest rate that tracks the Federal Reserve's federal funds rate. Most HELOCs are priced at Prime + a margin, so when the Fed moves, your rate moves too.

A legal claim against a property used as security for a debt. Your mortgage is a lien. Home equity products add additional liens to your property until the debt is repaid.

A standardized 3-page document lenders must provide within 3 business days of receiving your application, detailing loan terms, projected payments, and estimated closing costs.

When the outstanding balance on your mortgage exceeds the current market value of your home. You owe more than the home is worth, limiting your options to sell or refinance.