How to Use Equity in Your Home
6 minute read
April 29, 2022


For many homeowners, a home is more than a place to live—it’s also one of the biggest investments you’ll make in your lifetime. 

And it’s important to understand how to use equity in your home for maximum benefit.

You increase the equity in your home as you pay down your mortgage. You can leave your equity untouched and allow it to continue building, or you can put it to work for you.

Six ways homeowners can use home equity to pay for investments

The equity in your home refers to the difference between the market value of your home and your mortgage balance—the amount you still owe on your mortgage. 

In other words, equity is the portion of your home that you have paid for, and it can be a relatively simple source of a large lump sum of money.

One of the most common reasons to use home equity is often to fund other investments. But homeowners can use the equity they’ve built up in their home in a variety of ways, including:

  • Higher education
  • Home improvements
  • Business venture growth
  • Pay off loans
  • Debt consolidation

Pay for higher education

Many homeowners consider borrowing on the equity in their homes as an investment in the future. The equity in your home can be one way to handle the cost if you are interested in: 

  • enrolling in university
  • vocational college
  • specialized training, etc.
  • or have children exploring higher education

Using your home equity can be a favorable option especially compared to the costs of unsecured student loans.

Invest in home improvements

Using your home’s equity to improve the quality or comfort of your home is one of the most widely used investment options on the market. 

Home improvements also come with a built-in bonus: many home renovations can improve the overall value of your home, increasing its potential resale value. 

But not all home improvement projects add the same value. Before deciding on any home improvements or upgrades, it’s important to consider which renovations will deliver the benefit you’re hoping to achieve. Do some research online or even give your previous real estate agent a call. 

Invest in a business venture

Home equity loans can be an effective, efficient way to start or grow a business. 

Qualifying for a business loan can be a challenging process. But you likely already have a home that you’ve built equity in. 

Many entrepreneurs consider home equity to be an easier alternative for quick access to financing. 

Pay off car loans or credit cards

If you currently have a high-interest loan or continuing payments like a car loan or credit card debt, you might consider using your home equity to streamline your finances.

Homeowners can often access their home’s equity at a low-interest rate home loan and pay off their current, high-interest debt.

For lump-sum expenses or debt consolidation

Home equity loans come with the benefit of a lump sum payout that homeowners can use as they see fit. This can be especially helpful if an unexpected expense, such as a medical emergency for homeowners without an emergency fund, arises.

Getting a financial lump sum can also allow homeowners to pay for big-ticket items, like education, without paying the interest associated with long-term repayment. 

Additionally, many homeowners use the money from a home equity loan or home equity line of credit to consolidate debt into a single, lower interest rate payment.

A home equity loan can be a good option for homebuyers interested in saving money through debt consolidation.

Purchase real estate

Home equity loans or a second mortgage can help you buy an investment or second property without using loan products that carry higher interest rates. 

Using your home to fund an investment property can come with several popular advantages, such as lower interest rates, they’re often easier to qualify for, and in the case of an investment property they can sometimes “pay for itself” through a rental income stream.

Home Equity Line of Credit (HELOC)

HELOCs are often easier to qualify for than a cash-out refinance home loan and typically have smaller closing costs than traditional loan products. 

Additionally, borrowers are only required to make interest-only payments during the draw period—the timeframe borrowers can “spend” their home equity credit. 

Many homeowners find they have either sold their home for profit or have secured a rental income stream to cover the repayment costs by the end of the draw period.

Cash-out refinance

A cash-out refinance is when homeowners swap their existing mortgage for a new mortgage—for more money. The second, larger mortgage repays the primary mortgage in full, and homeowners get the remainder of the mortgage amount in cash.

A cash-out refinance is generally more complex than a HELOC and typically has higher closing costs.

How can I build equity in my home to maximize my cash-out?

How quickly someone will build equity in their home will depend on the specifics of their first mortgage. 

In general, homeowners with small down payments will require more time to build equity in their homes. On the other hand, larger down payments typically mean building equity faster. 

This is because only a portion of your monthly mortgage payment goes toward the loan principal (the remainder goes toward interest). Therefore, the longer you pay your mortgage, the equity in your home increases as the principal amount of your loan decreases.

Contact Assist Home Loans for your next purchase or refinance

Whether you’re looking to update the terms or lower the interest rate of your current mortgage or explore a new purchase, Assist Home Loans can help you navigate the different home loan products. 

Our loan officers are available to provide up-to-date information on eligibility and rates for conventional mortgages, FHA home loans, VA home loans, refinancing products, and more. 

Deciding to use the equity in your home can be the right choice for many homeowners. But no one mortgage loan will be perfect for everyone. That’s why we take the time to get to know you and your specific situation. 

We’re here to help you succeed and find the best solution for your family. If you’re ready to apply, you can start the process online

Contact Assist Home Loans today if you’d like to talk with a home loan specialist about what options you have available and which one will work the best for your family.