When’s the Right Time to Use Your Home Equity?
Your home has probably been more than just four walls and a roof. It’s where birthdays were celebrated, late-night talks happened, and maybe even a few dance parties in the kitchen. But beyond the memories, your home might be quietly building something else: equity.
As home values rise across the Twin Cities, many homeowners are realizing their house can help with more than just shelter - it can support big financial goals. Whether it’s tackling debt, funding a renovation, or helping with college tuition, tapping into your equity can be a smart move. But timing and purpose matter.
Let’s walk through what home equity is, how it works, and when it might make sense to use it.
What Is Home Equity, Really?
Home equity is the part of your home you truly own. It’s the difference between your home’s current market value and what you still owe on your mortgage.
Think of it like a savings account that lives inside your house. Every mortgage payment adds to it, and rising property values give it a little extra lift.
When Might It Be a Good Time to Use It?
There’s no one-size-fits-all answer, but here are a few signs it could be the right moment:
• You’ve built up at least 20% equity
More equity usually means better borrowing options and lower rates.
• You’re planning to stay put for a while
If you’ll be in your home for a few more years, you’ll have time to rebuild equity and benefit from the loan.
• You have a clear purpose
Whether it’s remodeling the bathroom or helping with college costs, know what the funds are for—and how you’ll pay them back.
• Your financial picture is solid
Lenders look at credit score, income, and debt-to-income ratio. Strong numbers can lead to better terms, but even if things aren’t perfect, options may still be available.
How Do You Actually Access Your Equity?
You don’t have to refinance your first mortgage to tap into your home’s value. Two common options are:
• HELOC (Home Equity Line of Credit)
Works like a credit card. You borrow as needed during the draw period and pay interest only during that time. Later, you’ll repay both interest and principal.
• HELOAN (Home Equity Loan)
Gives you a lump sum upfront. You start repaying both principal and interest right away, which can be helpful for larger, one-time expenses.
What Are Smart Ways to Use Home Equity?
When used thoughtfully, home equity can be a powerful tool. Here are a few common uses:
• Home upgrades
Renovating the kitchen or replacing an old furnace? If it adds value to your home, equity can be a practical way to fund it.
• Debt consolidation
Rolling high-interest credit card debt into a lower-rate HELOAN can simplify payments and save money over time.
• Education costs
Tuition is a big investment. Using equity may be more affordable than private student loans—just make sure you have a repayment plan.
• Medical expenses
If insurance doesn’t cover everything, equity can help bridge the gap without turning to high-interest credit cards.
• Emergency cushion
A HELOC offers flexibility. You can draw only what you need, when you need it—making it a useful safety net.
Final Thought
Using your home equity isn’t just about borrowing—it’s about making smart moves that support your bigger financial picture. If you’re curious whether it’s the right time for you, I’d be happy to chat and help you explore your options!