In property or contract law, what does 'equity' mean?

The term 'equity' in the context of property or contract law refers specifically to the interest in property that is owned outright, which is the value of the property above any liabilities secured against it, such as a mortgage. This means that if a property is sold, equity represents the difference between the sale price and the amount still owed on any existing loans.

For example, if a homeowner has a house worth $300,000 and they owe $200,000 on their mortgage, their equity in that property would be $100,000. This concept is crucial because it highlights the actual ownership stake a person has in an asset, which is important for various legal and financial considerations, including selling the property, securing loans, or assessing value in potential divorces or bankruptcies. Understanding equity helps clarify one’s financial position regarding an asset and informs legal decisions related to property ownership.