What does the term "positive equity" mean?

Positive equity refers to the situation in which the market value of a property is greater than the amount owed on any mortgages or liens against it. This means that if the homeowner were to sell the property, they would receive proceeds that exceed their outstanding debt, resulting in a financial gain. This phenomenon is beneficial for homeowners, as it provides them with options for leveraging their equity, whether it be through refinancing, borrowing against the equity, or selling the property for a profit.

In contrast, the other options describe scenarios that do not reflect positive equity. When the property value is equal to the amount owed, the homeowner has no equity; similarly, when the mortgage balance equals the purchase price, there is typically little to no equity built up in the property. An increasing mortgage balance suggests a decline in net worth in relation to the property, which is contrary to the concept of positive equity. Overall, understanding positive equity is crucial for real estate transactions and financial planning within the real estate market.