What is equity in real estate?

Equity in real estate refers to the portion of a property's value that the owner truly owns, free of any debt or encumbrances such as mortgages. It represents the difference between the current market value of the property and the total amount of debt owed against it. When a homeowner makes mortgage payments, they gradually build equity in their property as they pay down the principal balance of the loan.

For example, if a property is worth $300,000 and the homeowner owes $200,000 on their mortgage, the owner's equity in the property would be $100,000. This equity can grow over time due to appreciation in property value or as the homeowner pays down their debt, offering opportunities for leveraging the property for loans or selling it for profit. Understanding equity is crucial for homeowners and investors alike, as it plays a significant role in financial decision-making related to real estate.