What does "equity" in real estate refer to?

Equity in real estate is defined as the difference between the current market value of a property and the outstanding mortgage balance. This represents the owner's stake in the property. For example, if a home is worth $300,000 and the homeowner owes $200,000 on the mortgage, the equity in that home would be $100,000.

Understanding equity is crucial for homeowners and investors, as it reflects the portion of the property that the owner truly owns free of debt. It can also dictate the ability to refinance, sell the property, or leverage it for additional financing, making it a fundamental concept in real estate financing and ownership. Calculating equity is an important aspect of evaluating financial health in real estate assets.