Home equity is the difference between the current value of your house and the amount left on your mortgage. As your equity grows, so do your options for using it to reach financial milestones—paying for home improvements, medical expenses, college education, big-ticket purchases, retirement, and much more.
Recent home price appreciation has contributed to near-record levels of equity. The average homeowner in the U.S. currently holds approximately $311,000 in untapped home equity. More than two-thirds of homeowners have either completely paid off their mortgages or built up at least 50 percent equity.
7 Ways to Unlock Your Home Equity (Without Having to Move)
Today, many homeowners are using their homes to meet their financial goals. Here’s how:
1. Pay down debt
Using a cash-out refinance or traditional refinance, which may lower a monthly payment, can free up extra funds. These funds might be used to pay for higher education, plan a wedding or vacation, pay down high-interest debt, or even start a business. When you refinance, there’s no restriction on how you use the money.
2. Make repairs or upgrades
Home equity rises when home values increase. For homeowners who don’t intend on selling, it makes perfect sense. You can upgrade and enjoy the home you’re living in, while also helping to increase its market value if you plan to sell in the future.
Cashing out on equity, renovating, and reinvesting in your home is essentially doubling down on your investment. Remember, not all renovations increase a home’s value, so plan wisely. Home improvements and debt consolidation are among the most popular uses for home equity.
Contact your Cornerstone loan officer for a quick—and complimentary—mortgage review.
3. Buy another property
Some homeowners cash out on equity to pay for a second home’s down payment. Buying a second property used for vacation or as a rental offers another source of equity gains. Your Cornerstone loan officer can work with your financial advisor to assess your current equity levels and weigh the cost versus benefits of purchasing a second house.
4. Fund your retirement*
A home equity conversion mortgage (HECM) is available to homeowners ages 62 and older who qualify, allowing you to convert your existing home equity into cash. Depending on HECM loan terms, funds may be available as a lump sum, a line of credit, a monthly payout, or a combination.
With an HECM, you’ll receive a portion of your home equity funds tax-free. Again, there are no restrictions on these funds. You can supplement retirement income, pay for emergency or healthcare expenses, pay off high-interest debt, finance home renovations, and more.
The difference between an HECM and a traditional mortgage is that you’ll no longer have to make monthly mortgage payments. You’ll keep living in your home, paying property taxes, homeowners insurance, and maintenance, and can receive a monthly payout. An HECM may be helpful to older homeowners who are “cash poor but house rich.”
5. Pay for unexpected expenses
If you already have a low rate on your mortgage, you may not benefit from refinancing. You could use a HELOC instead. A home equity line of credit (HELOC) is a revolving line of credit secured by your home. A HELOC works like a credit card, offering a credit line to pay for business or medical expenses, high-interest debt, renovations, and more.
6. Help family members
Homeowners also use their home equity to assist family members with significant financial needs. This could involve providing funds for your child’s down payment on their first home, helping an aging parent, or offering financial support during a difficult time. A cash-out refinance or HELOC can supply the funds needed for family assistance.
7. Build equity for the future
What if you’re not in a place to tap into your equity? If you’re buying a new house, you can use a home renovation loan to purchase a fixer-upper for the purpose of building equity. You can also use a renovation loan to refinance and improve your home’s value and equity by making upgrades.
A renovation loan rolls the cost of home repairs into the cost of refinancing or buying a house. An all-in-one loan program like this helps to limit out-of-pocket repair expenses. Using a renovation loan, you get the best of both worlds: you can upgrade the home you’re living in and build equity.
Stay Home and Stay Happy
If you’re ready to move toward your next big milestone—without making a move—a Cornerstone loan officer can help. Get in touch to find out how your home equity could fund your future.
Sources deemed reliable but not guaranteed. For educational purposes only.
*A HECM is not a government benefit; it is an FHA mortgage loan program. This material is not provided by, nor was it approved by, any government agency including HUD or FHA and Cornerstone Home Lending is not affiliated with any U.S. government agencies. HECM borrowers must live in the home as their primary residence; stay current on property taxes, homeowners insurance, and HOA dues; and maintain the home per FHA requirements. Consult your professional tax and financial advisor for additional guidance.