One of the biggest benefits of being a homeowner is the ability to build up — and use — equity from your home.
Equity is the value of your home minus what you owe on your mortgage. For example, say you bought your home for $500,000 about 10 years ago. In that time, you’ve paid off $150,000 of your mortgage, and your home has grown to $700,000 in value. If you do the math, you have $350,000 in equity in your home. (How that’s calculated: Your home’s value of $700,000 minus the $350,000 you still owe on your mortgage.)
Nationwide, the average homeowner has about $200,000 in equity, according to 2024 data. You may have more or less depending on your personal situation.
That equity can be a powerful financial tool! In fact, a lot of financial advisors use the home equity they have built up to make smart money moves. They often do so by taking out a Home Equity Line of Credit (HELOC), which is essentially a line of credit secured by the value of your home. You only pay interest on the amount you use from that line of credit.
Here are some things to know and what you can learn from smart financial advisors about using equity to your advantage!
Equity is not always available. If you just bought your home, if the real estate market is unsettled or if your property value decreases, you could have negative equity. Normally, positive equity can take some time to build up, so you may not be able to use any of your equity when you first purchase a home. But, if you’ve lived in your home for a few years and you’ve kept up the property maintenance, there’s a good chance you have some equity there!
You can build equity. In addition to keeping up your property maintenance, you can build equity by making significant improvements and by paying your mortgage down faster. You can talk to a qualified property assessment professional to find out what projects could increase the value of your home.
You can use a HELOC for all sorts of things. Here are a few ideas:
You can use equity to build equity. In a weird twist, you could take out a Home Equity Line of Credit (a HELOC), which is a way to borrow money from your home, and use that money to increase your home’s value. Using a HELOC for value-building home renovations is often much less expensive than getting a personal loan or using your credit cards.
While home improvements are the most common use of a HELOC, some other uses might include:
- Debt consolidation. You can pay off credit cards and other high-interest expenses with a lower-interest HELOC, which can help you spend less money on debt service.
- Education. When public student loans, grants and scholarships aren’t enough, some parents use their HELOC to help their children pay for education. In some cases, this money is less expensive to borrow than traditional private student loans.
- Property or other big purchases. Some real estate investors actually use the equity in one home to buy another property to rent out. You need a high credit score and a good Realtor and mortgage professional to pull this off, but it can be a good way to start building a property portfolio.
You should know that you don’t need to wait until you need money to set up a HELOC. You can set it up now and not use it until you need it or decide to use those funds.
While a HELOC sounds like a magical solution for paying for expensive items, there can be a few drawbacks to them. Many come with a variable interest rate, which you’ll want to keep an eye on. In addition, a HELOC is considered a second mortgage, which means that if you don’t pay it back, you could lose your home.
If you’re interested in learning more about how to use the equity in your home, be sure to reach out! CommonWealth One has mortgage professionals who are ready to answer all of your questions about how much equity you have and how best to use it. We’re here for you, for life, and for all of its expenses. Just call, click or stop by a branch today!
