How is "home equity" defined?

Home equity is defined as the difference between a property's market value and the remaining mortgage amount. This means that if a homeowner owns a property that is worth a certain amount, the equity reflects what is truly owned outright after accounting for any debts against it.

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 is $100,000. This concept is essential for homeowners as it represents their financial stake in the property, and it can change over time with fluctuations in market value or as they pay down their mortgage.

The other options do not accurately reflect the definition of home equity. The total amount of money invested in home improvements only factors into the overall investment in the property but does not consider the mortgage. The appraisal value at the time of purchase is simply a snapshot of value, not considering any outstanding mortgage debt. Lastly, the amount of money you can borrow against your home is related to equity, but it does not define what home equity is; rather, it is a practical application of the concept of equity itself.