Did you know your home is more than just a place to live? It can also be one of your biggest financial assets. Over time, as you pay down your mortgage and your home’s value grows, you build home equity. Using home equity can be a smart way to fund major life goals.
Whether you’re planning for college tuition, facing a medical bill, dreaming of a big trip, or hoping to update your kitchen, your home’s equity may offer a smart and cost effective way to borrow. Two of the most popular tools for doing this are home equity loans and home equity lines of credit - commonly referred to as HELOCs.
In this guide we’ll explain how to use home equity to fund major projects or expenses, and break down the differences between home equity loans and HELOCs.
What Is Home Equity?
Home equity is the difference between your home's current market value and the amount you still owe on your mortgage. For example, if your home is worth $400,000 and your mortgage balance is $250,000, you have $150,000 in home equity. Most lenders allow you to borrow a portion of that equity- typically up to 80–85% of it- which means you can access cash without having to sell your home or move.
How to Use Home Equity
Home equity can be a powerful tool. Because your home is used as collateral, lenders see it as a less risky form of borrowing. That’s why home equity loans and lines often come with lower interest rates than credit cards or personal loans.
You can use home equity to pay for:
Home Equity Loan vs. HELOC: What’s the Difference?
Both financing options let you use your home’s value to access money. However, they work in different ways. Understanding their differences can help you choose the best option for your situation.
Borrowing Responsibly: What to Know Before Using Home Equity
While home equity loans and HELOCs can be smart tools, it’s still important to borrow carefully. Here are a few key things to keep in mind:
Your home holds more value than you may realize. When you tap into your home equity responsibly, you can access funds to support your goals, improve your lifestyle, and manage major expenses. If you’re unsure where to begin, BankFive is here to help. We offer HELOCs and home equity loans with competitive rates and helpful guidance. Whether you're planning a project or preparing for a major expense, contact our mortgage team today to walk through your options.
Whether you’re planning for college tuition, facing a medical bill, dreaming of a big trip, or hoping to update your kitchen, your home’s equity may offer a smart and cost effective way to borrow. Two of the most popular tools for doing this are home equity loans and home equity lines of credit - commonly referred to as HELOCs.
In this guide we’ll explain how to use home equity to fund major projects or expenses, and break down the differences between home equity loans and HELOCs.
What Is Home Equity?
Home equity is the difference between your home's current market value and the amount you still owe on your mortgage. For example, if your home is worth $400,000 and your mortgage balance is $250,000, you have $150,000 in home equity. Most lenders allow you to borrow a portion of that equity- typically up to 80–85% of it- which means you can access cash without having to sell your home or move.
How to Use Home Equity
Home equity can be a powerful tool. Because your home is used as collateral, lenders see it as a less risky form of borrowing. That’s why home equity loans and lines often come with lower interest rates than credit cards or personal loans.
You can use home equity to pay for:
- College tuition
- Medical bills
- Home upgrades or repairs
- Debt consolidation
- Vacations or major life events
- Emergency expenses
- Starting a small business
Home Equity Loan vs. HELOC: What’s the Difference?
Both financing options let you use your home’s value to access money. However, they work in different ways. Understanding their differences can help you choose the best option for your situation.
- Home Equity Loans: Predictable and Budget Friendly. Home equity loans give you a lump sum of money all at once. You repay it through fixed monthly payments over a set number of years. Home equity loans can be great when you know exactly how much money you need up front, like when you’re paying for a roof replacement or wedding, or consolidating debt. Because your rate, term, and monthly payment stay the same, your budget is more predictable.
- HELOCs: Flexible and Accessible. Home equity lines of credit work similarly to a credit card. Instead of receiving a lump sum, you get access to a credit line that you can draw from as needed during a “draw period,” usually 10 years. HELOCs typically have a variable interest rate that can change over time, and you only pay interest on the funds you actually draw. This kind of financing can be a good choice for long term projects like home renovations or medical expenses that happen in stages and might not have a set price upfront.
Borrowing Responsibly: What to Know Before Using Home Equity
While home equity loans and HELOCs can be smart tools, it’s still important to borrow carefully. Here are a few key things to keep in mind:
- Know Your Equity: You’ll need enough equity in your home to qualify. Most lenders won’t let you borrow against all of your equity—you’ll usually need to keep around 15-20% of it untouched.
- Review Your Monthly Budget: Before taking on new debt, make sure the monthly payments will fit comfortably within your budget. Your lender can help you estimate your payment so there are no surprises.
- Understand the Risks: Because your home is used as collateral, you must be confident in your ability to repay the funds. Creating a budget can help you stay on track.
Your home holds more value than you may realize. When you tap into your home equity responsibly, you can access funds to support your goals, improve your lifestyle, and manage major expenses. If you’re unsure where to begin, BankFive is here to help. We offer HELOCs and home equity loans with competitive rates and helpful guidance. Whether you're planning a project or preparing for a major expense, contact our mortgage team today to walk through your options.