High interest rates. Rising prices. Shrinking savings. Several things continue to imperil many Americans’ financial security. It hasn’t helped that borrowing hasn’t been this expensive in 20 years and, to add insult to injury, it’s harder to get financing or credit, too. Nearly half (48 percent) of Americans who applied for a loan or financial product between December 2023 and December 2024 were rejected, according to Bankrate’s Credit Denials Survey.
But, amid still-high mortgage rates and near-record-high home prices, there’s a silver lining if you own a home. The rise in property values has likely increased your home equity (or outright ownership stake). You can borrow against that equity to meet new expenses — or settle old ones.
If you’re a homeowner needing cash, here are eight reasons to use home equity loans and home equity lines of credit (HELOCs). In each case, we’ve noted the advantages and disadvantages.
8 reasons to use a home equity loan/HELOC
There aren’t any restrictions on how to use equity in your home, but there are a few ways to make the most of a home equity loan or HELOC.
1. Home improvements
Home improvement is one of the most common reasons homeowners take out home equity loans or HELOCs. Besides making the home more comfortable, upgrades could make it more valuable.
“Home equity is a great option to finance large projects like a kitchen renovation that will increase a home’s value over time,” says Glenn Brunker, president of online lender Ally Home. “Many times, these investments will pay for themselves by increasing the home’s value.”
Another reason to consider a home equity loan or HELOC for renovations: You could deduct the interest paid on the loan, assuming you itemize deductions on your tax return.
2. Education costs
A home equity loan or HELOC can help you fund higher education or continuing education, whether for you, your children or other loved ones. This route typically only makes sense, however, when home equity rates are lower than student loan rates. That doesn’t happen often, especially with federal loans, but it might with private loans.
Consider, too, the type of education you’re financing. Someone obtaining a teaching certification, for example, might be able to get the cost covered by their future employer. Some public service professions are also eligible for student loan forgiveness after a period of time. In these cases, it wouldn’t be smart to put your home on the line with an equity loan.
3. Debt consolidation
Americans’ credit card debt is skyrocketing. According to Bankrate’s Credit Card Debt Survey, 48 percent of credit card holders currently carry a balance from month to month. Given cards’ average interest rate of 20.09 percent, paying down that debt can be tricky, not to mention expensive.
A HELOC or home equity loan can be used to pay off the plastic, along with other high-interest loans. “This is another very popular use of home equity, as one is often able to consolidate debt at a much lower rate over a longer term and reduce monthly expenses significantly,” says Matt Hackett, senior vice president and head of operations at mortgage lender Equity Now.
4. Emergency expenses
Many financial experts agree you should have an emergency fund to cover three to six months of living expenses, but that’s not the reality for many people: Over half (56 percent) of Americans have less than three months of expenses saved or have no emergency savings at all — and, as of January 2025, only 2 in 5 (41 percent) Americans would pay a major unexpected expense out of their savings, according to Bankrate’s Emergency Savings Survey. If you find yourself in a costly situation — maybe you’re facing large medical bills or unexpected home repairs — a home equity loan or HELOC can be one way to stay afloat.
However, this is only a viable option if you have a plan for how to repay the debt. While you might feel better knowing you could access your home equity in case of an emergency, it still makes smart financial sense to set up and start contributing to an emergency fund. Plus, the application process for a HELOC or home equity loan takes time (though it’s speeded up of late: Some online lenders, such as Better, are offering approval decisions within one day). In a true emergency when you need cash fast, you’d need to already have the loan in place to use it.
5. Business expenses
Some business owners use their home equity to start or grow their company. If you need capital, you might be able to save money on interest by taking equity out of your home instead of taking out a business loan. Before you commit, though, run the numbers. A return on investment isn’t guaranteed, and you’re putting your house on the line.
6. Investment opportunities
It’s possible to use home equity to invest in the stock market or buy a rental property — though both propositions are risky and require serious care and consideration. A well-qualified borrower might be able to take out a home equity loan on an investment property they own, as well.
Consider the cost of home equity borrowing, though. While HELOC rates have dropped to two-year lows, they’re still upwards of 8 percent – not a bargain by any means. You’ll need to find an investment that beats that 8 percent mark to generate a meaningful return.
7. Retirement income
If your retirement savings are falling short, tapping home’s equity can help supplement your income so you can better manage expenses. These funds can be used to cover bills, emergency expenses or even home improvements to make you more comfortable as you age. A big caveat: This strategy relies on your ability to repay the loan or HELOC. If you’re not yet drawing Social Security, you might be able to repay HELOC funds with the benefit money later on. If you’re fully retired and struggling to make ends meet, however, it’s possible you won’t have the means to repay the debt, even if you have a HELOC you don’t have to pay back right away.
There are other roadblocks to this strategy, too: If you’re still paying your first mortgage, tapping your equity adds to your expenses and puts you in debt that much longer. It might also be harder to even get an equity loan if your income has decreased since you’re no longer employed full-time.
If you need retirement income, a reverse mortgage may be a better option than a home equity loan or HELOC.
8. Big-ticket items
It’s possible to use your home equity for big-ticket purchases. Traveling in particular can come with a steep price tag, and tapping your home’s equity could help cover the costs without having to increase your credit card debt. But it doesn’t add up in many cases.
Take cars, for example. Home equity loans have much longer repayment terms than auto loans, resulting in lower monthly payments. But that also means paying much more interest over time. Cars are also depreciating assets, meaning your car will be worth much less than you paid for it by the time you finish repaying the equity loan.
The same problem applies to expensive experiences, like weddings and vacations. Going into debt – and risking your home in the process – isn’t typically a good route to cover these kinds of discretionary expenses. They’re over in days or weeks, but the debt can drag on for decades. Even if they provide memories for a lifetime, it shouldn’t take a lifetime to pay for them.
What is home equity?
Home equity is the difference between what your home is worth and how much you still owe on your mortgage. As you pay down your mortgage and your home’s value increases, your equity stake grows.
If you’ve just closed on a home and need cash, you can generally tap into your home equity right away. However, some lenders require borrowers to wait several months before applying for a home equity loan or HELOC. And whether there’s a waiting period or not, you’ll have to meet the lender’s eligibility requirements. These can include credit score minimums, income verification and debt-to-income (DTI) ratio maximums. Most importantly, you’ll also need at least 20 percent equity in your home to qualify, though some lenders accept 15 percent.
What are the different ways you can access your home equity?
There are a couple of common ways that most homeowners can access their home equity.
- Home equity loan: A home equity loan is a type of second mortgage in which you receive a lump sum upfront and then make regular monthly repayments over the loan term, usually at a fixed interest rate.
- Home equity line of credit (HELOC): A HELOC is a revolving line of credit, much like a credit card, that comes with a variable rate. You can borrow, repay and then re-use funds as needed during a set draw period and then pay off your balance during a repayment period.
How do I calculate how much home equity I can borrow?
With a home equity loan, most lenders allow you to borrow as much as 80 percent to 85 percent of your combined loan-to-value (CLTV) ratio. It’s called “combined” because it considers both your current mortgage and any additional loans you’d take on.
CLTV is calculated by taking the total amount you would owe in home-based debt and dividing it by the total value of the home. For example, if your home is worth $450,000, and you have an outstanding mortgage amount of $200,000, and you would like to take out a home equity loan for $50,000, here’s how to calculate CLTV:
($200,000 + $50,000) / $450,000 = 0.56 X 100 = 56% CLTV
