What can I use home equity for?
6 minute read
September 15, 2022


Your home is so much more than just a place where you keep your stuff. If you’re like most Americans, your home is also your most valuable asset. 

As you make monthly payments, you gradually build equity in your home that you can tap into to fund various projects or unexpected expenses. 

If you’re asking yourself, “what can I use home equity for?” you’re in the right place. 

We’ll look at some ways you can use your home equity to help you decide whether accessing your home equity is right for you. 

What is a home equity loan?

Home equity loans, also called a “second mortgage,” allow homeowners to get a loan secured by their home. 

Your lender determines how much you can borrow based on your home’s value and how much is left to pay on your mortgage. 

Home equity loans are usually lump sum, cash payments, and most have fixed interest rates. 

Home equity loans are exceptionally flexible, and borrowers can use the money they receive from a home equity loan for various purchases or expenses. 

Learn about your home equity options

What is a home equity line of credit?

A home equity line of credit, also called a HELOC, is a loan in the form of a line of credit. 

HELOCs allow homeowners to borrow funds using the equity in their homes as collateral. Most lenders allow you to use up to 80% of the equity in your home. 

You can use the line of credit for the duration of the “draw period.” The draw period is the duration or ‘lifetime’ of your HELOC and is usually between 10-20 years. 

A line of credit essentially works like a credit card—borrowers make monthly payments and replenish the accessible credit. You can use that credit repeatedly during the draw period. 

Most HELOCs have an adjustable interest rate. But you can shop around for lenders that offer home equity loans to find the best terms and rates. 

Why should I tap into my home equity?

Depending on your financial situation and what you want the funds for, using your home equity can be a relatively simple way to access a large sum of cash with better than average interest rates compared to conventional personal loans. 

How do I calculate my home equity?

Your home’s equity is the difference between your home’s actual value and the remaining principal portion of your mortgage; it’s the percentage of your home that you’ve paid for. Every homeowner’s equity will be different.

Home equity loan calculator

To figure out how much equity you have in your home, you can use our refinance mortgage calculator. Simply input the data and let the calculator do the math. 

Get your HELOC rate now

What can I use my home equity for?

Homeowners can use their funds for almost anything that matters to them. However, many homeowners borrow money from a HELOC or home equity loan for the following: 

  • Home improvements and upgrades
  • Pay for education
  • Consolidate credit card debt
  • Pay for medical expenses 
  • Fund a business venture
  • Make a major purchase like a second home, car, etc. 

Lenders typically don’t place restrictions on how borrowers can use the money from a home equity line of credit or loan. 

Home improvements and upgrades

Home improvements and upgrades are one of the most popular uses of home equity loans or lines of credit because it puts the money back into the home. 

Renovations can range from simple upgrades like painting or interior decorating to major renovations like new windows or updating a kitchen.

Home improvements that increase your home’s value add to your overall home equity. 

Additionally, homeowners may be able to deduct the interest on their equity loan at tax time if they use the funds to improve their homes. 

Pay for education

According to the US Department of Education, the ideal time to repay student loans is ten years, but the reality is significantly longer. 

EducationData found that it takes the average student almost double the Department of Education’s recommended timeframe, “closer to 20 years,” to repay their debt. 

Using the money from a home equity loan can offer an alternative to decades of heavy debt that contribute to more than one-third of all bankruptcies in the United States.

Consolidate credit card debt

Another good way to use home equity is debt consolidation. Credit cards have an average interest rate of 16.45%

Using funds from a lower interest HELOC or loan to pay off credit card debt is a popular choice because of the lump sum borrowers receive This can be helpful if you find it difficult to pay more than the minimum on your credit cards each month. 

Pay for medical expenses 

It’s estimated that the average cost for a three-day hospital stay is almost $30,000, and fixing a broken leg can carry a price tag of more than $7,000

Additionally, unplanned medical expenses, extended medical care, or rehabilitation can all quickly add up. 

Using your home equity to offset these costs can be an alternate solution for some homeowners. 

Funding a business venture

Using your home equity to start a new business venture can homeowner entrepreneurs by providing a stable financial floor from which to build their business. 

Focusing on growing your venture without having to worry about how to pay for essential equipment like computers can contribute to a positive return on the initial investment. 

Making a major purchase like a second home, car, etc.

Many homeowners use their home equity toward a down payment on vacation or investment property, or other significant purchases like a wedding or vacation, because of the better terms or interest rates they can receive.

Accessing the equity in your home

Home improvements and repairs can help put more equity into your home, helping a family member pay for college can eliminate burdensome debt before it starts, and covering medical costs can allow you to focus on getting healthy without worrying about money. 

Using the equity in your home can often offer greater access to cash or credit with better interest rates than other market options. 

But it’s important to remember that using your home equity means using your home as collateral. 

Before you choose to tap into your home’s equity, take time to consider it carefully. If you fail to repay your home equity loan or line of credit, you could risk foreclosure.

If you’re ready to access the equity in your home, you can start the application online today. 

If you’re wondering whether a HELOC or a home equity loan might be right for your situation, reach out to the home equity specialists at AAA Banking today.

Photo by Cal David

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