How to get equity out of your home: Ways to tap home value

Home equity represents one of the most valuable financial assets you have as a homeowner. And understanding how to get equity out of your home opens doors to financing opportunities you might not have otherwise.

There are several ways to pull equity out of your house without selling it or taking out an expensive personal loan. Whether planning home improvements, consolidating debt, or covering major expenses, you can borrow money by tapping into your home equity at interest rates lower than those of personal loans or credit cards. Here’s how.

What is home equity?

Home equity represents the portion of your home that you own. Calculate it by taking the difference between your home's current market value and the outstanding balance on your mortgage. Many homeowners find that their home equity becomes their most valuable asset over time.

For example, if your home is worth $400,000 and you owe $250,000 on your mortgage to your lender, you have $150,000 in home equity. Regular mortgage payments grow your equity over time by reducing your principal balance and decreasing the amount your lender owns. Equity can also increase through home value appreciation, home improvements, or natural market appreciation.

Home equity offers several advantages: 

— It generates profit when you sell your home, since you keep the equity after paying off your mortgage.

— It provides access to borrowing options like a home equity loan, cash-out refinance, or home equity line of credit (HELOC). 

— It can fund major expenses such as home renovations, education costs, or debt consolidation. 

How to build equity in a home

Building equity in your home creates long-term wealth and opens doors to future opportunities — all while maximizing your property’s financial potential.

Here are four effective strategies to maximize equity:

1. Increase your down payment: A down payment represents your first stake in your home's equity. A larger one means you borrow less and have a higher percentage of ownership from the start.

2. Accelerate your mortgage payments: Maintaining regular, on-time payments is one of the steadiest ways to grow home equity. Supercharge this process with strategic payment approaches like making extra principal payments if you have disposable income, or an annual lump sum payment if you get cash from a tax refund or annual bonus. 

3. Invest in value-adding home improvements: Expand or update your home’s features to increase its value. First understand which improvements increase property value before taking this approach, because you could end up spending more money than the updates are worth.

4. Market appreciation: Your home's equity increases when the property's value rises. While you don’t control the housing market, you can position yourself to maximize your home appreciation.

When to consider tapping your home equity

Deciding when to borrow against your home’s equity requires careful consideration of both market conditions and your finances. Here are some of the factors to think about:

Market conditions to consider

• Interest rates: Lower interest rates make it more affordable to borrow against your home equity compared to personal loans.

• Local home values: Housing value appreciation provides more available equity, while volatile markets limit what lenders will offer.

• Economic stability: A steady economy makes it easier to predict your ability to repay a loan over time.

Personal finance factors to consider

• Stable income and job security: Consistent employment and income make additional debt payments manageable.

• Manageable debt-to-income ratio: Make sure there’s room in your budget for additional monthly payments.

• Emergency fund: Before making big financial moves, keep a separate savings account beyond your housing equity in case of unexpected life expenses.

3 ways to take equity out of your home

When it comes to taking equity out of your home, you have three main options — each with distinct advantages depending on your financial needs.

1. Home equity loan

A home equity loan is a way to borrow against your equity using your house value as collateral. It often offers better interest rates than personal loans because your home secures the debt. 

Home equity loans allow you to keep your existing mortgage rate, which is helpful if you already have a low rate. They work best for homeowners who have a big project or expense with a fixed cost.

Pros	Cons
Fixed monthly payments provide predictability	Higher interest rates than cash-out refinancing
Keep your current mortgage rate intact	A second mortgage means two monthly payments
Tax advantages for qualifying home improvements	Your home serves as collateral and risks foreclosure
Lower closing costs compared to refinancing	A fixed amount means you can't borrow more later

2. HELOC

A HELOC operates the same way as a credit card, offering a revolving line of credit. You only pay interest on the amount you use, not your whole line of credit. 

HELOCs often have a variable rate, a dedicated draw period (usually 5–10 years, where you can withdraw HELOC funds), and a repayment period (around 10–15 years). It’s best for homeowners with unpredictable cash needs over an extended period.

Pros	Cons
Pay interest only on funds you use	Variable HELOC rates can increase over time, leading to higher payments
Flexible access to money as needed	Monthly payments are unpredictable
Usually no or low closing costs	Repayment period can strain budgets
Tax-deductible interest for home improvements	Your home serves as collateral and risks foreclosure

3. Cash-out refinance

A cash-out refinance pays off your existing mortgage and gives you a new loan that may have different terms than the original. Unlike a home equity loan or personal loan, a cash-out refinance replaces your entire mortgage, potentially giving you lower interest rates on your total home equity borrowing.

With a cash-out refinance, your lender gives you a lump sum to pay off your existing mortgage first (including closing costs), and then pays any remaining money to you. It’s often the best option if you need cash directly or qualify to get a better interest rate than on your first mortgage. Find out how much you can get with a cash-out refinance calculator.

Pros	Cons
Typically lower interest rates	Must replace your entire existing mortgage
Single monthly payment instead of two	Higher closing costs similar to the original mortgage
Large lump sum available at closing	May lose your current mortgage rate
Can change loan terms or lower your monthly payments	Stricter approval requirements

With Better’s tech, you can figure out [what equity option is best for your goals](http://better.com/start) — and how much cash you can get from your home. From there, you could access cash in as little as seven days. 

Make your home equity work for you

Your home's equity represents a powerful financial resource to help you achieve your goals, from funding major renovations to consolidating debt or covering unexpected expenses. Whether you choose a home equity loan for predictable payments, a HELOC for flexible access to money, or a cash-out refinance for lower interest rates, each option provides unique advantages depending on your needs.

Better makes accessing your home's equity straightforward with streamlined lending options. With Better's 100% online application process, you can get cash for equity with competitive rates and no hidden fees in minutes, making it easier to convert your home equity into cash for whatever matters most to you. Explore your options today.

...in as little as 3 minutes – no credit impact