Definition
The part of your home's value that you own outright: its market value minus what you still owe on it.
What it means
Home equity grows in two ways: as you pay down your mortgage principal and as the home's value rises. It can also shrink if prices fall. Equity is often a household's largest asset and counts toward net worth. You can borrow against it with a home equity loan, a home equity line of credit (HELOC) or a cash-out refinance, but those loans use the home as collateral, so you could lose it if you cannot repay. Lenders usually let you borrow only up to a certain share of the home's value across all loans. When you sell, your equity minus selling costs is roughly what you take away, and a gain on a main home may be partly excluded from federal tax under IRS rules.
Example
A home worth $400,000 with a $250,000 mortgage has $150,000 of equity. A lender allowing 85% combined borrowing would cap total loans at $340,000, so up to about $90,000 more could be borrowed.
Illustrative numbers only. Your situation will differ.