In real estate, what is meant by the term "equity"?

Equity in real estate refers to the ownership value that an individual has in a property, which is calculated as the difference between the current market value of the property and the amount owed on any mortgages or loans secured against it. When a property appreciates in value, or when the mortgage balance decreases, the homeowner's equity increases.

This concept plays a crucial role in real estate investment, as equity can be leveraged for additional financing options or to gauge the wealth an individual has tied up in their property. Understanding equity is essential for homeowners and investors because it directly impacts their financial standing and potential investment decisions.