Home Equity and How to Use It
You may have more equity in your home than you think—and it’s a valuable asset you can take advantage of to consolidate debts, pay for higher education, or cover medical expenses, even if you’re not planning on selling your house.
What’s home equity?
Your home's equity is the current value of your home minus the amount you still owe. Here’s a quick example:
Appraised Value – Outstanding Loan Amount = Equity
$260,000 - $180,000 = $80,000
How to access your equity1
The first decision you’ll need to make is whether you want to stay in your home or sell it. If you are planning to sell, the amount you net from the sale will reflect the equity you’ve gained minus any repairs, recording and attorney fees, real estate commission, or closing costs. You can ask your real estate agent for a seller net sheet, which will tell you the amount of money you’ll receive from your home sale after expenses.
But even if you’re not selling, you still have options to access and make the most of your equity today.
1. Get a cash-out refinance2
With a cash-out refinance, you’ll replace your current mortgage with a new mortgage for more than you owe. At closing, you receive the difference in cash in one lump sum.Here’s an example:
Current Appraised Value of Home: $260,000
Original Mortgage Owed: $180,000
New Mortgage: $200,000
Cash Out: $20,000 (minus expenses)
If you choose this option, you’ll need to consider the closing costs for your new mortgage and the possibility of getting a new rate that could change your monthly mortgage payment. To get a better idea of what to expect, you can use our cash-out refinance calculator.
2. Open a Home Equity Line of Credit
A HELOC (home equity line of credit) allows you to borrow against your equity as needed over time. It works kind of like a credit card—you can borrow up to a preset limit, with a low variable interest rate, and only pay interest on the amount you take out. There’s no application or annual fee, and the rates are typically lower than other loans and credit card options.
A HELOC is a great option for goals like renovating your home, funding higher education, or covering unexpected expenses. Want to get an idea of how much you could borrow? Try our HELOC calculator.
Compare Your Options
| Option | What It Is | Best For | Pros | Cons |
|---|---|---|---|---|
HELOC
|
A revolving line of credit secured by your home's equity. You borrow, as needed, up to a limit. | Ongoing or unpredictable expenses (e.g., home projects, tuition). | Flexible borrowing, interest only on what you use. | Variable interest rates, payments can fluctuate. |
Cash-Out Refinance |
A lump sum loan using your home's equity, with fixed interest rate for the first five years of the loan. | One-time large expenses (e.g., debt consolidation, major renovation). | Fixed rate and predictable payments for the first five years of the loan. | Must borrow full amount upfront, less flexibility. |
Which option is best for you?
The best option for you will depend on your unique financial situation and what’s most important to you. But, in general, consider:
- If you prefer/need flexibility, choose a HELOC.
- If you want to refinance AND you’d like to get cash, choose the cash-out refinance.
Our mortgage experts are here to help with a complimentary loan review. Together, you’ll step through your options to find the best one for you. To start the conversation, call 1-800-914-8224 or send us a message.
1Not all borrowers will qualify. This is not a commitment to lend. Restrictions apply. Benefits listed may not apply to every borrower.
2Informational only; consult tax, legal and/or accounting advisors before engaging in any transaction.
