What does “equity” in real estate refer to?

The concept of "equity" in real estate refers specifically to the difference between the market value of a property and the balance of any outstanding mortgage owed on that property. This means that equity represents the ownership stake that the homeowner has in the property. For example, if a property is valued at $500,000 and there is a mortgage balance of $300,000, the homeowner has equity of $200,000 in that property.

Equity can increase over time as the property's value appreciates or as the mortgage balance decreases from regular payments. It is a crucial aspect of real estate investment, as homeowners can tap into their equity through options like home equity loans or lines of credit, or by selling the property. Understanding equity is vital for mortgage agents, as they need to convey this concept clearly to clients considering buying or refinancing their homes.