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

The term 'equity' in real estate refers to the difference between the current market value of a property and the remaining balance on any mortgages or liens against it. This means that equity represents the portion of the property that the owner truly owns outright. For example, if a home has a market value of $300,000 and the mortgage remaining is $200,000, the homeowner has $100,000 in equity.

Understanding equity is crucial for homeowners, as it can be built over time through appreciation of property value and through the paydown of the mortgage. Equity can also be an important consideration for refinancing or home equity loans, as it directly impacts the amount of borrowing capacity available to the homeowner.

In contrast to the other options, equity is not simply the total sale price of the house or the home's current market value alone. It also does not encompass household expenses, as equity strictly pertains to ownership value in relation to the mortgage owed.