How to Use Equity in Your Home to Build Wealth

Jillian Kemmerer
Jan 15
3 min read

Your home is more than just a place to live—it can be a powerful financial tool. By leveraging the equity in your home, you can take some great steps toward building wealth and securing your financial future. In this post, we’ll explore what home equity is, how you can access it, and smart ways to use it to achieve your goals.

What is Home Equity?

Home equity is the difference between your home’s market value and the balance of your mortgage. For example, if your home is worth $400,000 and you owe $250,000, your home equity is $150,000. This equity can be accessed and used to build wealth through various strategies - keep reading!

How to use your Home Equity

1. Understand Your Current Equity

Start by determining how much equity you have. You can do this by getting a professional appraisal or checking recent sales of similar homes in your area. Knowing your home’s market value and the remaining balance on your mortgage is essential. Not sure what your market value maybe? A thorough CMA can give you a good idea.

2. Explore Equity Access Options

There are several ways to access your home equity:

Home Equity Loan: A lump sum loan with a fixed interest rate, paid over time in the same way as a mortgage.
Home Equity Line of Credit (HELOC): A flexible line of credit you can draw from as needed, pay back down, and then reuse as you make your funds available. You can think of this almost like a credit card - the amount available to you is the amount you haven’t used yet - over and over again.
Cash-Out Refinance: Refinancing your mortgage for more than you owe and taking the difference in cash. This can be a great tool to use if you’ve got a higher interest rate, and the rates have come down a bit.

Each option has pros and cons, so consult with a financial advisor to determine the best fit for your needs.

Steps to Use Equity in Your Home to Build Wealth

1. Invest in Real Estate

Using your home equity to purchase an investment property is one of the most popular wealth-building strategies. Rental properties can generate passive income and appreciate over time, further increasing your wealth. This move can seem scary if you’ve never owned a rental property. Some people also only hear horror stories about owning rental properties, and get totally turned off from this possibility. Having someone in your corner to help you not only identify the right investment property, help you navigate the scarier parts, and even help you find the right tenants and manage your property can definitely help take the big question marks out of this option for you, and make Real Estate Investing a really great option.

2. Pay Off High-Interest Debt

If you’re carrying high-interest debt, such as credit card balances, using home equity to consolidate and pay off these debts can save you money and improve your financial health. With the average American household having around $6,000 of credit card debt with the average interest rate being over 18%, paying credit card debt off as quickly as possible can make a huge difference in a person’s life.

3. Fund Home Improvements

Investing in renovations can increase your home’s value, growing your equity further while also checking off some of your “honey do” list. Focus on upgrades that provide the highest return on investment, such as kitchen remodels or energy-efficient improvements. Not only will this make your life easier, but if you decide to sell, it’s less for your buyer to think about - making your home easier to live in, and easier to sell - Win - Win!

Want to know how much equity you have and how to put it to work? Contact me today for a free consultation and personalized advice on how you could possibly use your home equity to build wealth.

Additional Tips and Best Practices

Avoid Overleveraging: Only borrow what you can afford to repay. Overextending your finances can put your home at risk.
Consider Tax Implications: Some uses of home equity may have tax benefits or consequences. Consult with a tax advisor before making decisions.
Maintain Good Credit: Your credit score impacts your ability to access favorable loan terms. Ensure your credit is in good standing before applying for equity products.

Your home’s equity is a powerful tool that can open doors to financial opportunities. By understanding your options and using your equity wisely, you can take significant steps toward achieving your financial goals. Whether it’s investing in real estate, paying off debt, or funding renovations, the possibilities are endless.