Home equity refers to the value of a person's ownership in their home. It is calculated by subtracting any outstanding mortgage balance from the current market value of the property. Homeowners can use this value as collateral for loans or other financial transactions, such as taking out a second mortgage or using it to secure a line of credit. In essence, home equity represents the amount of wealth that an individual has accumulated in their property and can be used as a source of funds when needed.