I ask about Equity = Assets — Liabilities here, not its meaning as stock. See Personal Finance For Canadians For Dummies (2018). p 468.

equity: In the real-estate world, this term refers to the difference between the market value of your home and what you owe on it. For example, if your home is worth $400,000, and you have an outstanding mortgage of $150,000, your equity is $250,000. Equity is also a synonym for stock.


early 14c., "quality of being equal or fair, impartiality in dealing with others," from Old French equite (13c.),
from Latin aequitatem (nominative aequitas) "equality, uniformity, conformity, symmetry; fairness, equal rights; kindness, moderation,"
from aequus "even, just, equal" (see equal (adj.)).
As the name of a system of law, 1590s, from Roman naturalis aequitas, the general principles of justice which corrected or supplemented the legal codes.

  1. Why was 'equity' was adopted to describe this difference?

  2. What semantic notions underlie the emboldened abstract nouns overhead, with 'Assets — Liabilities'? Please see the titled question.

  • could have something to do with bankrupcy and acquitting?
    – vectory
    Dec 11, 2019 at 9:32
  • FYI: a settlement in German legalese is a Vergleich, a comparison or literally an equation, however Ausgleich, also comes to mind. Note: aus- "out, ex", can mean over and out, off, quit in some limited context. cp ex-friend on the one hand, and to acquit on the other. Also abgleichen, angleichen, etc, all possibly calques from Latin turn of the century; gleich means equal, just, fair, right now, same, etc.
    – vectory
    Dec 14, 2019 at 0:58

4 Answers 4


Once upon a time, the word law stood for a system of rules that were very rigid and that the courts were obliged to enforce very rigidly. That system of rigidly enforced rigid rules often produced results that were harsh and intuitively unfair, and so there emerged a system of rules, practices, and the institutions, whose aim was to correct the harshness of the law, in that narrow sense, and produce the results that were closer to what seemed intuitively just. That system was called equity. (See the quotation in the WS2’s answer for a more formal statement of this.) In the terminology of the time, the law and equity thus stood in contrast to each other.

Over time, the two systems merged, and what most of us, in most contexts, nowadays call the law encompasses both the elements that have their origins in the law in that narrow sense, and the elements that have their origins in equity. There are, however, in the present-day law (in the broad sense) still numerous echos of the distinction between the law, in the old, narrow sense, and equity. In the context of legal practice, the word law continues to sometimes be used in the narrow sense, in which it is contrasted with equity.

What is crucial to understanding the shift that the question is about is that under the rules of the law, in that narrow sense, the mortgagee (the lender, e.g. a bank) holds the title to the property (i.e. is its owner), until the last penny of the debt is repaid; it is only then that the buyer becomes the owner. You could thus repay 99% of the debt, and still own nothing, in the eyes of the law, in the narrow, old sense. If the law, in that sense, controlled the outcomes, that would, of course, often produce harsh, unjust results. To prevent such injustices, the rules of equity emerged that treat the mortgagor as, in a way, owning something even before the debt is fully repaid. The word equity came to be used for what the mortgagor has, because his having it depended on the rules of equity.


Equity isn't the same as equality - although they come from the same root.

Equity in the financial sense comes from its legal usage in equitable as fair or just. The equity in your house is the bit that you have a legal right to, it is fair and just that this part is yours


I don't think the meaning of "equity" has changed when it is used in "home equity".

You need to understand what equity means in the financial sector. Equity is what you own as in equity partners. If there are five equal equity partners in a law firm, they will own 20% of the firm each.

In a limited liability company such as all the listed companies, it means

the amount of the funds contributed by the owners (the stockholders) plus the retained earnings (or losses). Also referred to as shareholders' equity.


Let's say you bought a house worth $1,000,000 yesterday and you paid $300,000 out of your own pocket and borrowed $700,000.

Total assets (your house value, $1,000,000) = Equity ($300,000, your own money) + Liability ($700,000, debt)

In order to buy that house, you needed something that should make up for the deficit between the house price and the debt you could borrow. That's the equity.

As @JimMack points out in the comment, your equity fluctuates as the house price goes up and down and your equity could become zero or even negative if the house price goes down to or below $700,000.

  • 'Equity' isn't what you have personally invested but rather the difference between what you owe and what you could sell for. Equity can increase or decrease based on market value, and it can become negative, regardless of your initial investment. investopedia.com/terms/h/home_equity.asp
    – Jim Mack
    May 28, 2016 at 17:09
  • @JimMack Well, that's why I used "yesterday" in the example. I just wanted to simplify the example.
    – user140086
    May 28, 2016 at 17:14
  • I assumed you knew that since we both cited the same source (-: I just wanted to clarify and I appreciate the edit.
    – Jim Mack
    May 28, 2016 at 17:42

It is Sense 5 of the word equity in the OED.

The earlier senses relate to the notion of equity as an adjunct to law, and forming an essential part of jurisprudence in all English-speaking jusrisdictions. Sense 4a has relevance.

4a. In England (hence in Ireland and the United States), the distinctive name of a system of law existing side by side with the common and statute law (together called ‘law’ in a narrower sense), and superseding these, when they conflict with it. The original notion was that of sense 3, a decision ‘in equity’ being understood to be one given in accordance with natural justice, in a case for which the law did not provide adequate remedy, or in which its operation would have been unfair. These decisions, however, were taken as precedents, and thus ‘equity’ early became an organized system of rules, not less definite and rigid than those of ‘law’; though the older notion long continued to survive in the language of legal writers, and to some extent to influence the practice of equity judges. In England, equity was formerly administered by a special class of tribunals, of which the Court of Chancery was chief; but since 1873 all the branches of the High Court administer both ‘law’ and ‘equity’, it being provided that where the two differ, the rules of equity are to be followed. Nevertheless, the class of cases formerly dealt with by the Court of Chancery are still reserved to the Chancery Division of the High Court.

Following this principle - sense 5b relates the system of equity to a mortgagor.

5b. equity of redemption: the right which a mortgagor who has in law forfeited his estate has of redeeming it within a reasonable time by payment of the principal and interest. equity to a settlement: a wife's equitable right to have settled upon her any properties coming to her after marriage.

The foregoing is the history of the way in which the jurisprudential concept of equity became applied to the notion of ownership. A relevant example of its use is from 1966 and the Dictionary of Economic Terms:

1966 A. Gilpin Dict. Econ. Terms (1967) 72 Equities, the ordinary shares of a limited company. They carry the right to the residue of a company's assets after it has paid all its creditors, and share in the distribution of profits, if any, after interest has been paid to preference share-holders and debenture holders each year.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.