In real estate, what does the term "equity" define?

The concept of equity in real estate is defined as the difference between the market value of a property and the outstanding mortgage balance. This definition encompasses the owner's financial interest in the property. When a property appreciates in value or when the owner pays down their mortgage, equity increases, representing the portion of the property that the owner truly "owns" free of debt.

For instance, if a home has a market value of $300,000 and the mortgage balance is $200,000, the equity in that home would be $100,000. This figure is critical for homeowners, as it can be used for borrowing against the property, selling the property, or assessing financial stability. Understanding equity is essential for making informed decisions about property ownership and investment.