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Paying off a mortgage can feel like an endless obligation you simply check off each month. While there’s no immediate reward, each payment builds home equity—an asset you can convert into cash when needed. Put simply, it is how much of your house you actually own. You can compute it by taking your house’s market value and subtracting the remaining amount you owe on your mortgage.
You gain more equity when you pay off the mortgage or when your property increases its value. As this value increases, you can tap into it and use it for different things. This article discusses the best ways to use home equity.
- Home equity loan: Functions like a second mortgage, where you can receive a loan of a fixed amount based on your equity value. You pay this off monthly at a fixed interest rate.
- Home Equity Line of Credit (HELOC): Works like a credit card. You can borrow up to the credit limit for the draw period. Afterward, you stop withdrawing and pay back what you borrowed with interest.
- Cash-Out Refinance: You get a new loan that amounts to the remaining mortgage and a part of your equity. This pays off your remaining mortgage and gives you cash worth part of your home equity.
What to do with it
1. Consolidate debt
Maybe you have some credit card debt or car loans that are piling up. If the interest rates are making it harder to make payments on time, you can use a home equity loan to pay them off. Though it might seem like switching one debt for another, you can get lower interest rates and reduce your overall loan cost.
Before making this decision, make sure to compute the total loan cost of all your options, factoring in closing costs too. Ensure that the loan you choose is the cheapest option and you’re sure you can pay for it.
2. Home renovation
Looking to spruce up the kitchen or expand the house a bit? You can use your property’s equity to fund it. This is one of the most common and best ways to use home equity. By doing this, you can potentially increase the value of your property. The renovation essentially becomes an investment that pays for itself down the line.
This loan also offers tax deductions, which can lower interest if you use the money for your home. If you’re unsure about exactly how much you’ll need for the renovation, you can withdraw as needed with a HELOC.
3. Investment opportunities
If you want to invest in the stock market or buy a rental property but don’t want to eat up your savings, you can take up a home equity loan. If the investment goes well, you can build up wealth that can go into retirement or big purchases. The sooner you start investing, the earlier you start to feel its benefits.
But every investment comes with risks. Whether or not it’s a success, you will be paying off the loan. Carefully consider your investment and other sources of funding before choosing this option.
4. Emergency expenses
Unexpected situations can put finances in danger. Losing a job or suddenly getting medical bills can take up savings, especially if you don’t have an emergency fund prepared. In these circumstances, you can take a home equity loan to temporarily cover expenses.
It’s important to keep in mind that some loans take longer to approve than others. Ideally, you should still set aside savings that you can quickly access when needed.
5. Preparing for retirement
When you’re approaching the age of retirement, you might want to consider different ways to earn a retirement income. You can do a cash-out refinance to put into a rental property or other investments that sustain you.
If you’re already in retirement and struggling to make ends meet, you can also use your house’s equity to cover expenses for the time being. However, loans can not support you forever, and you need to have a plan for paying them off and sustaining yourself during retirement.
Before committing to any loan, make sure to have a payment plan. Consider your existing mortgage, other debt, income, and monthly budget before adding in a new monthly expense.
Remember that with home equity loans, you’re putting your property on the line. Failing to pay for your monthly loans could mean losing your house, so every decision must be thoroughly and carefully considered.
Fast pre-approvals, tailored loans, and trusted advice—that’s what you can expect with Nclusive Financial. Whether buying your first home, investing in property, or looking for the right loan, we’re here to help you make it happen. Let’s turn your next move into a reality.
Key Takeaways
- Home equity, or how much of your property you own, builds up when you pay off your mortgage or your house increases its value. This can be tapped into for different things.
- You can use these loans for paying off debt, home renovations, and investment opportunities. You can also tap into it during times of emergencies or during retirement.
- It’s essential to have a payment plan for these loans since failing to pay for it carries a high risk, such as losing your house.
References
Chen, J. (2025, June 3). Home Equity: What It Is, How It Works, and How You Can Use It. Investopedia.
How to use home equity: 5 things to do with a HELOC. (n.d.). Citizens Bank.
Martin, A. (2025, May 27). What is home equity? Bankrate.
Woodward, E. (2025, March 17). 8 reasons to tap your home for cash: Expenses you can use home equity for. Bankrate.
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