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Everything You Ever Wanted to Know About Home Equity

If you are looking to take the next step when it comes to where you live, you may be asking yourself, “Should I rent or buy a house?”

Home equity is a big reason to buy – a home is an investment, and increasing your equity over time is a great thing to do.

What is it?

Home equity is the current value of your home less what you owe on the mortgage. If the number is positive, you have equity.

Home equity builds over time as you pay down mortgage balances or add value to your home. It’s an important asset for homeowners because it can be used to borrow home equity loans or lines of credit. 

How do you use it?

You may want to consolidate debt or free up cash to put toward a home renovation. Borrowing against the value of your home could be a good option. There are several ways to use your home equity.


A home equity line of credit uses your house as collateral. It’s a revolving line of credit and, much like a credit card, you can utilize this when you need to and pay the money back. HELOCs typically offer lower interest rates than credit cards.

Home Equity Loan

A home equity loan lets you borrow the whole amount of money as a lump sum. After getting all the money at once, you must make monthly principal and interest payments.

This loan is paid back over a period of time with interest that is usually set at a fixed rate.

The amount of time it will take to pay off and the monthly amount you have to pay is all dependent on how much you borrowed and the loan terms you agreed upon with the lender.

Cash-Out Refinance

You can refinance your mortgage for more than what you owe, and you’ll receive the difference in cash to use as you please.  

For example, if your home is worth $300,000, but your mortgage is only $200,000, you might do a cash-out refinance for a new loan of $275,000. You receive $75,000 in cash and start making new (and larger) mortgage payments.

How do you build equity?

Home equity is a long game, but there are things you can do to quicken its increase.

To start, you can put more than the minimum payment on your mortgage each month. If you make your payments bi-weekly instead of monthly, it’s possible to pay off a 30-year mortgage 5 years early. Just be sure your lender won’t charge extra fees for processing extra payments.

You can perform renovations and upgrades to the home to help increase its value. Be mindful of taking on projects that will actually increase worth and give a good return on your investment.

If you find yourself with more room in your budget or a change to your finances that allows you to net more monthly income, consider refinancing your loan to cut the term in half. Going from a 30 to a 15-year loan will build equity twice as fast, though your monthly payments will go up.


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