WACC Weights Explained: How to Weight Debt vs Equity Correctly
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Key terms
- EquityThe value of ownership in an asset after debts are subtracted. In real estate, it's the property value minus what you owe. In stocks, it represents ownership shares in a company.
- Debt-to-Income Ratio (DTI)The percentage of your gross monthly income that goes toward paying debts. Lenders use DTI to assess your ability to manage monthly payments and repay borrowed money.
- Home EquityThe portion of your home that you truly own, calculated as the property's market value minus what you owe on your mortgage. Builds over time through mortgage payments and property appreciation.
- Debt AvalancheA debt repayment strategy where you pay minimum payments on all debts, then put extra money toward the debt with the highest interest rate. Saves the most money on interest.
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