What does home equity refer to?

Home equity refers to the difference between the current market value of a property and the amount still owed on any mortgages or loans secured by that property. In other words, it's the portion of the property that the owner truly owns, free and clear of any debt. If you imagine a home valued at $300,000 with a remaining mortgage balance of $200,000, the home equity would be $100,000.

Understanding home equity is essential because it represents an important financial asset that can be tapped into through various means, such as home equity loans or lines of credit, providing homeowners with access to funds for renovations, investments, or other expenses. Recognizing how home equity works helps individuals make informed decisions about borrowing against it or understanding their net worth in relation to their real estate investments.