How to Use the Equity in Your Home

As a homeowner, you have valuable opportunities to use your home’s equity, especially with rising home values. The goal is to empower you with insights on how to use home equity for significant purchases and investments, while advising on when to refrain from tapping into this resource. Understanding how to use the equity in your home is crucial for making informed financial decisions.

Key takeaways:

• Rising home values have significantly increased homeowner equity, creating new opportunities to use that equity as a financial resource.
• Home equity can be strategically used for home renovations, debt consolidation*, education costs, or emergency situations. Borrowing from your home's equity should be approached with clear financial planning and done responsibly.
• Borrowing against home equity carries risks, so it’s important to avoid using it for everyday expenses or high-risk investments that could jeopardize your home.

How to Use Equity in Your Home Effectively?

Many homeowners have seen their property value rise significantly beginning in 2024—part of a broader trend that’s reshaped the housing market. According to recent data from the Federal Reserve Bank of St. Louis¹, U.S. home prices have climbed nearly 29% in value since the end of 2020, giving homeowners more equity than ever before. This surge in value has opened new doors for those looking to leverage their home’s equity as financial tools.

Homeownership offers traditional benefits like stability and long-term investment potential—but it also provides access to borrowing power that many homeowners may not fully realize. Learn how to use this powerful financial tool wisely—whether for renovations, investments, or education—and when it might be best to hold off.

Understanding Your Home’s Equity

As a homeowner you may ask yourself, what is home equity? Home equity is the portion of your home’s value that you own outright, determined by subtracting any outstanding mortgage balance from your home's current market value. For example, if your home is worth $400,000 and your remaining mortgage balance is $250,000, you have $150,000 in equity. This equity represents the portion of your home that you truly own—and it can be a powerful financial resource.

Taking equity out of your home becomes possible as you build more of it over time. Equity grows in two main ways: by making regular mortgage payments that reduce your loan balance and through increases in your home’s market value. The increases can be driven by local real estate trends, home improvements, and broader economic conditions. As home values have risen significantly in recent years, many homeowners now have more equity than they realize.

6 Common Ways to Use Your Home's Equity

There are a number of ways to leverage your home equity—each with its own potential benefits. Here are six common examples:

1. Home Improvements

Using equity for home improvements can increase your property value and enhance your living space. Whether it's a kitchen remodel or adding energy-efficient features, these upgrades can provide significant returns on investment and are a prime example of how to take equity out of your home effectively.

2. Consolidate Debt^*

Using a home equity loan or home equity line of credit to consolidate higher-interest debt can be a smart financial move. These options often come with lower interest rates than credit cards and in some cases, the interest may even be tax-deductible. By rolling multiple debts into one manageable monthly payment, you can simplify your finances, reduce your total interest costs, and potentially pay off your debt faster.

3. Real Estate Investing

Looking to grow your wealth through real estate? Tapping into your home equity can provide the funds to purchase a second home or rental property.

4. Educational Expenses

Covering the cost of education can be a major financial challenge. By using a home equity loan or line of credit, you can access funds at potentially lower interest rates than private student loans or credit cards.

5. Emergency Fund

If unexpected expenses arise—like a leaking roof, broken HVAC system, or plumbing emergency—and your savings fall short, tapping into your home equity can provide a financial cushion. With lower interest rates than other credit options, it’s a practical way to stay prepared without relying on high-cost borrowing.

6. Medical Expenses

Healthcare expenses can often be substantial and accessing home equity may offer a more affordable solution.

Importance of Using Your Home Equity Responsibly

While leveraging home equity offers many benefits, it’s crucial to avoid certain pitfalls. Remember your home is collateral and you do not want to end up in a position where you could lose your house. Here are a few situations where caution is advised:

1. Covering Daily Expenses

Using home equity to pay for everyday costs like groceries, bills, or rent may seem like a quick fix, but it’s not sustainable. This approach can quickly lead to a cycle of debt and financial instability, especially if you’re not addressing the root cause of the shortfall.

2. Funding Luxury Expenses

It’s important to approach lifestyle-related spending with care. Because your home serves as collateral, borrowing for non-essential expenses—such as celebrations, travel, or upgrades—should be done thoughtfully. While these experiences can be meaningful, it’s crucial to ensure that the debt remains manageable and aligns with your long-term financial goals. Overextending yourself could put your home and financial stability at risk if repayment becomes difficult.

3. Avoid Repeating the Debt Cycle

While it is common to leverage home equity to pay down higher-interest credit cards and consolidate debt, it’s easy to fall back into old habits. Create a budget and spending plan to avoid accumulating new debt.

4. Investing in Risky Businesses

Starting a business is exciting—but using your home equity to fund a high-risk or unproven venture can be dangerous. If the business fails, you could be left with debt and no return on your investment, putting your home and financial future in jeopardy.

Always ask yourself, is using home equity a good idea for my current situation?

Accessing Your Home Equity

There’s more than one way to tap into the value you’ve built in your home. Depending on your financial goals, you can choose from several options to access your home equity—each with its own benefits and structure.

1. Home Equity Loan

A Home Equity Loan provides a lump sum of money upfront, which you repay over time with fixed monthly payments. It features a fixed interest rate, so your payment stays the same throughout the life of the loan. This is ideal for large, one-time expenses like a home renovation project or debt consolidation. Plus, there are no closing costs, making it a simple and predictable borrowing solution.

2. Home Equity Line of Credit (HELOC)

A Home Equity Line of Credit (HELOC) offers flexible access to funds, functioning much like a credit card. You can use it when you need it for current and future expenses. It typically comes with a variable interest rate, and you only pay the amount you actually use. Some HELOCs allow you to lock in a portion of your balance at a fixed rate for more predictable payments, giving you both flexibility and control. Additional benefits may include interest-only payments during the initial draw period and no closing costs.

3. Cash-Out Refinance

A Cash-Out Refinance lets you replace your existing mortgage with a new one for a higher amount—allowing you to convert home equity into cash. This option can be especially beneficial if you qualify for a lower interest rate than your current mortgage, potentially reducing your monthly payments. Since it functions like a traditional mortgage, closing costs typically apply.

Considering Applying?

Your home is more than just a place to live—it’s a powerful financial asset. With rising property values and multiple ways to access equity, homeowners today have more opportunities than ever to turn built-up value into a powerful tool. By understanding both the benefits and the risks—as well as estimating your potential monthly payments using our payment calculator—you can make confident, informed decisions that protect your home and your future.

If you're interested in leveraging your home's equity, consult with a local expert, call 866-351-5353, or apply online today.