What does the term "equity" refer to in real estate?

The term "equity" in real estate specifically refers to the difference between the current market value of a property and the outstanding amount owed on any mortgages or liens against that property. This concept is essential in understanding home ownership and real estate investment, as equity represents the actual ownership stake a homeowner has in their property.

For example, if a home has a market value of $300,000 and the mortgage balance is $200,000, the homeowner has $100,000 in equity. This equity can increase over time as property values rise or as the homeowner pays down the mortgage. It can also be a key factor in tapping into loans or refinancing, as higher equity may provide better financing options.

Understanding equity is crucial for real estate transactions, financing, and personal wealth management, as it impacts a homeowner's ability to leverage their investment or realize profits from a sale.