{"id":27904,"date":"2026-03-31T23:14:03","date_gmt":"2026-03-31T23:14:03","guid":{"rendered":"https:\/\/alertfinnews.com\/?p=27904"},"modified":"2026-03-31T23:14:04","modified_gmt":"2026-03-31T23:14:04","slug":"what-is-home-equity-and-how-can-you-use-it","status":"publish","type":"post","link":"https:\/\/alertfinnews.com\/?p=27904","title":{"rendered":"What Is Home Equity And How Can You Use It?"},"content":{"rendered":"
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\n <\/p>\n

\n Key takeaways<\/span>
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\n <\/h2>\n

<\/p>\n

    \n
  • \n Home equity is the difference between your home\u2019s value and the amount you still owe on your mortgage. It represents the paid-off portion of your home \u2014 the amount you own outright.\n <\/li>\n
  • \n Your home equity can increase through making mortgage payments and home improvements, or as local property values rise. A decline in the local market will cause the worth of your equity stake to decrease.\n <\/li>\n
  • \n You can tap your equity and use it for various expenses, primarily via home equity loans and home equity lines of credit (HELOCs).\n <\/li>\n<\/ul>\n<\/div>\n

    Home equity is the difference between the current value of your home and the outstanding balance of your mortgage \u2014 in other words, the portion of your home you own outright.<\/p>\n

    \u201cAs you pay down your mortgage and your home\u2019s value hopefully increases, your equity also grows, contributing to your overall net worth,\u201d says Linda Bell, senior writer on Bankrate\u2019s Home Lending team. \u201cThe best part is that your equity isn\u2019t just there collecting dust. When used the right way and for the right reasons, your home\u2019s equity can provide you with financial flexibility and liquidity when you need it the most.\u201d<\/p>\n

    Once you\u2019ve built enough equity in your home, you can borrow against it. While you can theoretically access your equity at any time, most lenders require your stake to be worth at least 20% of your home\u2019s value before you can borrow against it.\u00a0<\/p>\n

    \u201cThe best part is that your equity isn\u2019t just there collecting dust. When used the right way and for the right reasons, your home\u2019s equity can provide you with financial flexibility and liquidity when you need it the most,\u201d says Bell.<\/p>\n

    \n <\/p>\n

    \n 44.6%\n <\/p>\n

    <\/p>\n

    \n The percent of U.S. mortgaged homes that are \u201cequity-rich\u201d (meaning their outstanding loan balances total no more than half their estimated market values).<\/p>\n

    Source:<\/p>\n

    ATTOM \u201cQ4 2025 U.S. Home Equity & Underwater Report\u201d\n <\/p>\n<\/p><\/div>\n

    What can you use home equity funds for?<\/strong><\/h2>\n

    Here are some of the most common reasons homeowners leverage their equity \u2014 that is, borrow against it:<\/p>\n

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    • \nFinance home improvements: <\/strong>You can use your equity to reinvest in your home by using the cash for a renovation. If the money goes towards upgrading the home and you itemize deductions, you could deduct the interest, as well.<\/li>\n
    • \nSettle outstanding balances: <\/strong>You can use a home equity loan or line of credit to consolidate debt, especially credit card balances charging double-digit interest rates, or medical expenses uncovered by health insurance.<\/li>\n
    • \nGet a business going: <\/strong>If you\u2019re starting up a side hustle, home equity loans might offer better terms than small business loans, and be easier to qualify for.<\/li>\n
    • \nBuild an emergency fund: <\/strong>A HELOC or HELoan can be a relatively quick, cost-effective way to cover sudden or unexpected expenses.<\/li>\n<\/ul>\n

      Why home equity loans are popular<\/h3>\n

      Why are people cashing in their home equity? Largely because they can. <\/p>\n

      The rapid rise in property values of the last few years sent ownership stakes soaring. More recently however, equity has been declining. Between the fourth quarter of 2024 and the fourth quarter of 2025, the average homeowner\u2019s equity decreased about $8,500, according to data analyst Cotality\u2019s \u201cHomeowner Equity Insights\u201d report for the fourth quarter of 2025. Year-over-year U.S. mortgage-holding homeowners saw their equity decrease $78.8 billion.<\/p>\n

      Also, mortgage rates have risen significantly since the pandemic years, which has impacted the cost of cash-out refinancing (previously, the most common way to tap home equity).\u00a0Admittedly, HELOC and home equity loan rates have increased, as well; around 8.25% currently, they aren\u2019t the bargain they once were. Still, they are more affordable than other forms of financing, such as credit cards and personal loans, and can be a little easier and quicker to obtain than a refi. Plus, you won\u2019t need to give up your low-rate mortgage, if you have one.\u00a0<\/p>\n

      How to calculate home equity<\/h2>\n

      To calculate the equity in your home, follow these steps:<\/p>\n

        \n
      1. \nFind your home\u2019s estimated current market value.<\/strong>\u00a0What you paid for your home a few years ago or even last year might not be its value today. If you\u2019re just exploring\u00a0home equity financing options, you can use an online home price estimator to get an idea of its worth. The most accurate assessment would be from a licensed appraiser.<\/li>\n
      2. \nSubtract your mortgage balance.<\/strong>\u00a0Once you know the value of your home, check your latest mortgage statement. Subtract the amount you still owe on your mortgage and any other debts secured by your home. The result is the dollar value of your home equity stake.<\/li>\n<\/ol>\n
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        \n
        \n

        \n Calculating home equity\n <\/p>\n

        \n

        Say you bought a home for $390,000, putting 3% down and financing the rest with a 30-year fixed rate mortgage at 6.99%. From the outset, you\u2019d have $11,700 in equity (3% of $390,000).<\/p>\n

        Five years later, your home\u2019s value has appreciated to about $440,000, and you still owe $359,000 on your loan. At this point, you\u2019d have $81,000 in equity ($440,000 \u2013 359,000).<\/p>\n<\/p><\/div>\n<\/p><\/div>\n<\/p><\/div>\n<\/section>\n

        What are the potential fees involved in taking a home equity loan?<\/h3>\n

        Home equity loans and HELOCs have closing costs \u2014 paid upfront, when the loan is finalized \u2014 that could add between 1% to 5% to your total borrowing costs. HELOCS generally have fewer closing costs than loans, but they often carry ongoing costs, like maintenance fees (similar to a credit card\u2019s annual fee) or different transactional charges.\u00a0<\/p>\n

        Typical fees include:<\/p>\n

        \n
        \n
        \n
        Origination fee<\/dt>\n
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        Charged by the lender for creating the loan.<\/p>\n<\/dd>\n<\/div>\n

        \n
        Appraisal fees<\/dt>\n
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        The charge for a professional to calculate your home\u2019s value.<\/p>\n<\/dd>\n<\/div>\n

        \n
        Credit check fees<\/dt>\n
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        The fee for your lender pulling your credit reports and scores.<\/p>\n<\/dd>\n<\/div>\n

        \n
        Title fee<\/dt>\n
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        The cost for the lender to verify that you do own your home.<\/p>\n<\/dd>\n<\/div>\n

        \n
        Prepayment penalty<\/dt>\n
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        A fee for paying off a HELOC or loan early.<\/p>\n<\/dd>\n<\/div>\n

        \n
        Transaction fee<\/dt>\n
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        A fee a HELOC may charge for each withdrawal.<\/p>\n<\/dd>\n<\/div>\n

        \n
        Annual fee<\/dt>\n
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        A HELOC charge that is incurred every year the account remains open, regardless of whether you make a withdrawal.<\/p>\n<\/dd>\n<\/div>\n

        \n
        Rate lock fee<\/dt>\n
        \n

        The fee charged by a HELOC if you set a fixed instead of a variable interest rate on all or part of your balance.<\/p>\n<\/dd>\n<\/div>\n<\/dl>\n<\/div>\n

        To minimize the fees you pay, it\u2019s important to compare lenders\u2019 offers for the fees they have, the amounts they charge, and if any of these are negotiable. <\/p>\n

        How to increase the equity in your home<\/h2>\n

        Your home equity can increase in a few different ways:<\/p>\n

          \n
        • \nAs you make mortgage payments:<\/strong> Every month when you make your regular mortgage payment, you\u2019re paying down your mortgage balance and increasing your home equity stake. You can also make additional mortgage principal payments to build your equity even faster.<\/li>\n
        • \nWhen you improve your home:<\/strong> Increasing the value of your home also increases your home equity. (Keep in mind that some home renovations add more value than others.)<\/li>\n
        • \nAs you ride the appreciation wave:<\/strong> Often (but not always), property values rise over time. This appreciation can be another way for you to build equity. Because your property increasing in value depends on several factors, such as its location and the economy, there\u2019s no way to tell how long you\u2019ll have to stay in your home to see a significant rise in value. The historical price data of homes in your area might give you some insight as to whether values have been trending upward or downward.<\/li>\n<\/ul>\n
          \n <\/p>\n

          \n $17 trillion\n <\/p>\n

          <\/p>\n

          \n The collective amount of home equity held by U.S. mortgage-holders at the beginning of Q2 2025. $11 trillion of that is considered \u201ctappable,\u201d meaning it can be borrowed against while maintaining a 20% equity stake in the home<\/p>\n

          Source:<\/p>\n

          ICE March 2026Mortgage Monitor Report\n <\/p>\n<\/p><\/div>\n

          Ways to tap your home equity<\/h2>\n

          If you want to borrow against your home equity stake, there are several ways to do so.<\/p>\n

          Home equity loan<\/h3>\n

          A home equity loan is a second mortgage for a fixed amount at a fixed interest rate. The amount you can borrow is based on the equity in your home, and you can use the funds for any purpose. This option can be ideal if you have a specific large expense or debt to pay off. It also comes with the stability of predictable monthly payments. If you use the funds to remodel your home, the interest might be tax-deductible.<\/p>\n

          Best for:<\/strong> Borrowers who have a one time large expense such as home renovations or paying off expensive credit card debt.<\/p>\n

          \n

          \n Your home\u2019s equity can provide you with financial flexibility and liquidity when you need it the most.<\/q>
          \n
          \n \u2014 Linda Bell, Senior Writer, Bankrate
          \n <\/cite>\n <\/p><\/blockquote>\n<\/div>\n

          Home equity line of credit (HELOC)<\/h3>\n

          A home equity line of credit, or HELOC, is also secured by your property and works like a credit card, charging interest at a variable rate. You can withdraw as much as you want up to the credit limit during an initial draw period, usually up to 10 years; after that, withdrawals cease and you have to pay back what you\u2019ve borrowed, plus interest. During the draw period, you can make repayments too, so that the credit line goes back up and you can withdraw again.\u00a0<\/p>\n

          Best for:<\/strong> Borrowers who have ongoing expenses or those seeking a more flexible borrowing option that can be accessed as needed over time.<\/p>\n

          Cash-out refinance<\/h3>\n

          A cash-out refinance replaces your current mortgage with another, bigger loan. This loan includes the balance you owe on the existing mortgage and a portion of your home\u2019s equity, withdrawn as cash. You can use these funds for any purpose. Unlike a HELOC or home equity loan, a cash-out refi might allow you to get a lower rate on your main mortgage, depending on market conditions, and shorten the term so you can repay it sooner.<\/p>\n

          Best for: <\/strong>Homeowners seeking to lower their interest rate while obtaining sizeable, lump sum of money that can be used for any purpose and not need be paid back.<\/p>\n

          Reverse mortgage<\/h3>\n

          A reverse mortgage is an option for homeowners aged 62 (or 55 with some products) and up. Unlike a HELOC or a home equity loan, the money withdrawn using a reverse mortgage doesn\u2019t have to be repaid in monthly installments. Instead, the lender pays you each month while you continue to live in the home. The loan, plus interest, must be repaid when the borrower dies, permanently vacates or sells the home.<\/p>\n

          Best for: <\/strong>Older homeowners whose retirement income is insufficient and are looking for ways to supplement their cash flow without impacting savings.<\/p>\n

          Shared equity agreement<\/h3>\n

          A shared equity agreement is a formal arrangement between a professional investor (or investment company) and a homeowner. You can receive a lump sum of cash in exchange for a percentage of ownership in your home and\/or a portion of its future appreciation; the investor receives compensation when the agreement ends on a designated date, or when you sell the home. You make no monthly payments in the meantime. These agreements cater to credit-challenged borrowers or those experiencing financial obstacles that prevent them from securing a traditional loan.<\/p>\n

          Best for: <\/strong>Borrowers who have poor credit or high debt-to-income ratio (DTI) that could make qualifying for a traditional loan or line of credit more challenging.<\/p>\n

          \n