Your Home Has Equity. Now What? 5 Ways Homeowners Can Use It

For many homeowners, their home is one of their largest financial assets. As the mortgage balance decreases and the home's value changes over time, homeowners may build equity.

But what exactly can that equity be used for?

What Is Home Equity?

Home equity is the difference between what your home is currently worth and what you still owe on your mortgage.

Simple Example:

• Estimated home value: $350,000
• Remaining mortgage balance: $225,000
• Estimated equity: $125,000

That doesn't necessarily mean $125,000 is available to withdraw, but it gives the homeowner an idea of the equity they may have built.

1. Make Home Improvements

Some homeowners use available equity to renovate a kitchen, update bathrooms, replace major systems, or make other improvements.

The key is choosing improvements carefully because not every renovation provides the same return.

2. Pay Off Higher-Interest Debt

Depending on the homeowner's financial situation, accessing home equity may offer a lower interest rate than certain types of consumer debt.

However, using a home to secure debt is a major financial decision and should be reviewed carefully with a qualified financial or lending professional.

3. Help Purchase Another Property

Equity may also play a role when homeowners are ready to sell and purchase their next home.

Proceeds from a sale could potentially provide funds for a larger down payment on the next property.

4. Build Toward Future Goals

For some homeowners, their property becomes part of a larger financial plan, whether that means downsizing later, investing in another property, or preparing for retirement.

5. Sometimes the Best Move Is No Move

Having equity doesn't mean it needs to be used.

Sometimes simply continuing to make mortgage payments and allowing equity to build may be the right decision.

How Much Equity Does Your Home Have?

Online estimates can provide a general idea, but they may not reflect recent improvements, condition, location, or current comparable sales.

A real estate professional can prepare a market analysis to help homeowners better understand what their property may be worth in today's market.

Important: Before borrowing against home equity, homeowners should speak with a qualified mortgage or financial professional about the costs, risks, and available options.

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