What does "equity" in a property refer to?

Equity in a property refers specifically to the difference between the property's market value and the remaining balance on any mortgage loans. This concept captures the owner's stake in the property. For instance, if a home is valued at $300,000 and the owner has a mortgage balance of $200,000, the equity would be $100,000. This figure represents how much of the property the owner truly owns outright; it encompasses the part of the property that is not encumbered by debt.

Understanding equity is crucial for various financial decisions, including refinancing, selling a home, or using a home equity loan. The concept emphasizes the actual ownership the homeowner has versus what is owed. Hence, understanding equity is essential for mortgage loan originators when discussing loan options, investments, and overall financial planning with clients.