Five Smart Ways Homeowners Use Their Equity

For most homeowners, the biggest chunk of net worth is sitting idle in their home. A home equity investment lets you unlock some of that as cash, with no monthly payment and no income hurdle, so you can put it to work. Here are five of the most common ways homeowners do exactly that.

1. Wipe out high-interest debt

Carrying balances on cards or personal loans drains your monthly budget. Tapping equity lets you clear that debt with a lump sum and no new monthly payment, so your cash flow improves immediately. You settle up later when you sell or refinance.

2. Renovate before you list

Thinking about a remodel but do not want a construction loan or to touch your mortgage rate? Pulling equity now funds the project so you can finish it and, if you are selling, capture the higher sale price. There is no new payment while the work gets done.

3. Buy or move up without selling first

You want the next home but have not sold the current one. Unlocking equity gives you a down payment without refinancing your current mortgage, so you can make a stronger offer and move on your own timeline rather than the market's.

4. Fund a business without a business loan

Homeowners launching a business often overlook their equity as a funding source. It can give you access to capital without a business loan, without draining savings, and without a new payment on your balance sheet, so you can self-fund and keep your options open.

5. Supplement retirement or put idle equity to work

Close to retirement and want to add income without selling investments? Or simply want to diversify money that is sitting flat in your walls? Equity can supplement income or move into other investments while you keep the home and avoid taking on new debt.

The common thread

In every case, the goal is the same: put a dormant asset to work without adding a monthly payment or disturbing a low mortgage rate. Which tool is right, an HEI, a HELOC, a second mortgage, a reverse mortgage, or a refinance, depends on your numbers. The right move is to compare them before you commit, which is what a no-obligation conversation is for.