What is home equity?

Home equity represents the portion of a property that an individual truly owns, which is calculated as the difference between the current market value of the home and the outstanding mortgage balance. This measurement reflects how much value a homeowner has accrued in their property through equity.

For instance, if a home has a market value of $300,000 and the outstanding mortgage balance is $200,000, the home equity would be $100,000. This figure is important because it can be utilized in various financial decisions, such as applying for loans or home equity financing.

The other options do not accurately define home equity:

• The total amount owed on a mortgage simply expresses a liability rather than ownership stake.

• The value of a home without considering mortgage does not factor in the portion owned by the homeowner.

• The appreciation of property over time refers to the increase in value but does not convey ownership or the equity held by the homeowner.

Thus, understanding home equity is crucial for homeowners as it directly affects their financial standing and potential capital for future investments.