What is the relationship between equity and loans on a property?

Equity in a property represents the ownership value that an owner has in their property, calculated as the difference between the property's current market value and the total amount of loans or mortgages against it. Therefore, as the amount of loans or debts secured by the property increases, equity diminishes because the net ownership value decreases when liabilities are subtracted from assets.

When a property’s market value remains the same, if a loan is taken out, it increases the total debt on the property, thereby reducing the owner's equity. Conversely, if a property owner pays down their mortgage or increases the property’s value without increasing debt, their equity will grow.

The other options misinterpret the relationship between equity and loans. Something unaffected by loan amounts would imply that changes in debt have no impact on ownership value, which contradicts how equity works in real estate. Similarly, suggesting that equity increases with the amount borrowed conflicts with the fundamental principle that increased debt leads to lower ownership value. Lastly, equity does not represent total loan amounts; rather, it is the value of the property reduced by those loans.