In real estate, what does "equity" refer to?

Equity in real estate refers to the difference between the market value of a property and the outstanding mortgage debt on that property. This means that if a home is valued at a certain amount, and the homeowner has an outstanding mortgage that is lower than that value, the homeowner's equity in the property represents that difference. Essentially, equity reflects the owner's stake in the property and can increase over time as the mortgage balance is paid down or as property values rise.

Understanding this concept is crucial for homeowners, as equity can be accessed for various financial purposes, such as home equity loans or lines of credit. This is an important measure of wealth for property owners and can influence decisions regarding refinancing, selling, or leveraging that equity for other investments.