Describe the term 'equity' in real estate.

The term 'equity' in real estate refers to the difference between the current market value of a property and the outstanding balance on any mortgage that is against that property. This definition encapsulates the owner's financial interest in the property; equity represents how much of the property is actually owned outright without any lien or loan encumbrance.

For instance, if a home is valued at $300,000 and the homeowner owes $200,000 on their mortgage, the equity in the home would be $100,000. This figure is significant because it can be accessed through various financial avenues, such as home equity loans or lines of credit, allowing homeowners to leverage their investments.

Understanding equity is crucial for homeowners and real estate investors because it impacts financial decisions, such as selling the property, refinancing, or using the equity for other investments. The concept of equity also plays a key role in determining the overall financial health of the owner in relation to their property.