What term describes the difference between property value and mortgage debt?

• A. Interest
• B. Taxes
• C. Appreciation
• D. Equity

Answer: (D)

Equity is the owner’s interest in a property, measured as property value minus the outstanding mortgage debt. It’s what you would receive after paying off the loan if you sold the home.

For example, if a home is worth $500,000 and the loan balance is $350,000, the equity is $150,000. As you pay down the loan or as the property’s value increases, equity grows. If the value rises to $550,000 while the loan remains $350,000, equity becomes $200,000. Conversely, if the value drops below the loan amount, equity can disappear (negative equity).

Interest is the cost of borrowing money, not the remaining ownership. Taxes are charges assessed by government on the property, not the difference between value and debt. Appreciation is the increase in the property’s value over time, not the amount you actually own free of debt.