What does it mean to have "equity" in a property?

Equity in a property refers to the difference between what the property is currently worth on the market and the total amount owed on any existing mortgages or liens. This concept is crucial for homeowners because it reflects the portion of the property that they truly own outright. For instance, if a home has a market value of $300,000 and the homeowner owes $200,000 on their mortgage, the equity in the home would be $100,000. This value can increase through appreciation of the property or by paying down the mortgage, making it a key component in assessing an individual's net worth and financial standing.

Understanding equity is fundamental in real estate since it also plays a central role when homeowners consider refinancing, selling their property, or taking out home equity loans.