What is the term for the difference between the amount owed on a house and its value?

The term that describes the difference between the amount owed on a house and its value is equity. Equity represents the portion of the property that the homeowner truly owns outright, calculated by subtracting any outstanding mortgage balance from the current market value of the home. For instance, if a house is valued at $300,000 and the mortgage balance is $200,000, the equity in the home would be $100,000. This concept is significant for homeowners as it reflects their stake in the property, which can be important for refinancing options, selling the home, or leveraging for additional loans.

Mortgage refers specifically to the loan taken out to purchase the property, while interest is the cost of borrowing that loan, expressed as a percentage of the principal amount. Credit, on the other hand, involves the ability to borrow money or access goods and services with the understanding of future payment. Understanding equity is essential for anyone involved in homeownership decisions, as it can impact financial planning and investment strategies.