For many homeowners, a home is more than a place to live—it can also be one of their largest financial assets. As you pay down your mortgage and your home’s value increases, you may build equity that could help support other financial goals.
Home equity is the portion of your home’s value that you own outright. Here are five ways homeowners may be able to use it.
1. Fund Home Improvements
Home equity can help finance renovations such as a kitchen remodel, bathroom addition, new roof, or energy-efficient upgrades.
Improvements may increase your home’s functionality and potentially its value, although not every renovation provides the same return on investment.
2. Consolidate Higher-Interest Debt
Some homeowners use home equity to consolidate higher-interest debt, such as credit card balances.
This may simplify payments and potentially reduce borrowing costs. However, it’s important to compare rates, fees, repayment terms, and total costs. Because the debt is secured by your home, responsible borrowing and a realistic repayment plan are essential.
3. Pay for Major Expenses
Depending on your financial situation, home equity may provide funds for significant expenses, including:
- Education costs
- Medical expenses
- A major purchase
- Wedding expenses
- Starting or expanding a business
Before borrowing, consider whether the expense justifies taking on additional debt and whether the payment fits comfortably within your budget.
4. Fund an Investment or Large Purchase
Some homeowners use available equity toward another property, a business opportunity, or another long-term financial goal.
Keep in mind that investments don’t guarantee a return, and borrowing against your home adds risk. Consider both the potential benefits and the financial obligations before moving forward.
5. Create Access to Future Funds
A home equity line of credit (HELOC) can provide access to funds as needed, up to an approved credit limit.
Unlike a home equity loan, which typically provides a lump sum, a HELOC offers more flexibility during its draw period. However, it is still borrowed money that must be repaid and may have a variable interest rate.
How Much Home Equity Can You Use?
The amount you may qualify to borrow depends on factors such as:
- Your home’s current value
- Your existing mortgage balance
- Your income and ability to repay
- Your credit history
- The lender’s requirements
- Applicable loan-to-value limits
For example, a $400,000 home with a $250,000 mortgage balance has approximately $150,000 in equity. That doesn’t necessarily mean you can borrow the full $150,000. Lenders consider several factors when determining how much you may qualify to access.
Is Using Home Equity Right for You?
Home equity can be a valuable financial resource, but it isn’t free cash. Borrowing against your home creates an additional financial obligation, with your home serving as collateral.
Before moving forward, consider:
- How much do you need to borrow?
- What will the funds be used for?
- What will the total borrowing cost be?
- Can you comfortably afford the payment?
- Could changing home values affect your financial position?
- Are there other financing options worth considering?
Put Your Home Equity to Work Strategically
For homeowners who have built equity, accessing that value may provide an opportunity to fund improvements, consolidate debt, cover major expenses, or pursue other financial goals.
The key is understanding both the benefits and risks. Compare your options, review the costs carefully, and make sure any new payment fits your budget.
Ready to explore your home equity options?
