Equity cushion describes the amount of value in a property that sits above its outstanding debt balance, representing the buffer that protects a lender, and ultimately the equity investor, if the property's value declines. It is closely related to loan-to-value ratio: a property financed with 60% debt has a larger equity cushion than one financed with 85% debt, all else being equal.
A larger equity cushion generally means a property can absorb more of a market downturn before its value falls below the outstanding loan balance, which matters both for refinancing risk and for how much room equity investors have before their position is wiped out entirely. Lenders often look closely at equity cushion when evaluating refinance requests or assessing risk on an existing loan, since a thin cushion leaves little room for error if rents soften, expenses rise, or property values compress.
Further reading: An Investor's Guide to Real Estate Return Metrics
ACCESS
