Homeowners

5 Ways to Use Home Equity to Solve Financial Problems

You may be sitting on more financial flexibility than you realize.

U.S. homeowners held nearly $35.8 trillion in home equity in 2026, according to the Board of Governors of the Federal Reserve System. The typical homeowner with a mortgage had an average of $310,000 in equity in the second quarter of the year, according to Cotality.

Depending on your goals, there’s likely a home equity loan built specifically to help you access it.

“Choosing the right option often depends on your specific situation and financial goals,” said Marc Pamatian, founder of Chief Bookkeeping Officer, a fractional bookkeeping company.

Whether you’re paying down debt, mid-renovation, planning a wedding, or eyeing retirement, the type of financing you choose matters as much as the decision to borrow at all.

Paying off high-interest debt: Cash-out refinance

If high-interest credit card debt is making it difficult to get ahead, a cash-out refinance may be worth considering.

What is a cash-out refinance? These loans allow you to tap into your home equity by replacing your existing mortgage with a larger, new one. You then pocket the difference and can use the money however you like.

If you’re trying to consolidate debt, these loans typically offer a lower interest rate. So, you can pay off credit card debt with the loan and then pay the loan back through your monthly mortgage payments.

However, you’ll want to weigh the new loan’s interest rate, monthly payment, and closing costs against the benefit of accessing your equity.

Remodeling your home: HELOC

Renovations don’t always come with a predictable price tag. A project may start with a kitchen remodel and expand as you uncover plumbing, electrical, or structural work.

That’s where a home equity line of credit, also known as a HELOC, can be useful. What is a HELOC? It’s a revolving line of credit that allows you to borrow against your home’s equity as expenses come up, rather than taking the entire amount upfront.

You typically can draw money from the HELOC for the first five to 10 years of the loan, only paying interest on what you borrow. Then you pay off the loan over the next 10 to 20 years.

Unlike a traditional home equity loan, a HELOC generally has a variable interest rate, which means your payments can change over time.

Paying for a wedding, college, or other major expense: Cash-out refinance

A wedding, college tuition, or major medical expense can create a large bill all at once. If you have equity in your home, a cash-out refinance may be worth considering when you’re comfortable refinancing your existing mortgage.

“For significant milestones like weddings or college tuition, a cash-out refinance can provide a lump sum with the added benefit of possibly lowering your mortgage rate if timed right,” Pamatian said.

The important consideration is whether refinancing fits your broader financial picture.

Retirement income: Reverse mortgage

For older homeowners, home equity can become another source of retirement funds without requiring them to sell their home.

So, what is a reverse mortgage? A reverse mortgage allows eligible homeowners to convert some of their home equity into cash. The most common type, a Home Equity Conversion Mortgage, is generally available to homeowners age 62 and older who meet certain requirements.

How does a reverse mortgage work? Instead of making traditional monthly mortgage payments, the homeowner receives funds according to the loan’s terms.

Property taxes, homeowners insurance, and property maintenance still have to be paid, and the home remains collateral for the loan. Heirs can still inherit the home, but the money must be repaid when the homeowner moves, passes away, or sells the property.

For anyone considering a reverse mortgage and retirement, understanding those responsibilities, along with the costs and long-term effect on home equity, is essential.

Starting a business: Second mortgage

Home equity can also provide capital for someone starting or growing a business. If you have a low interest rate on your existing mortgage, you may want to consider a second mortgage.

What is a second mortgage? Typically, these loans provide a lump sum. For a business owner who knows how much capital is needed, the consistent payments may be easier to plan around than a revolving line of credit.

“Starting a business often calls for a home equity loan for its fixed rates and predictable repayment structure,” Pamatian said.

But using home equity to fund a business comes with an important risk: The loan is secured by your home, even though the money is being used for your business. That makes it especially important to consider whether the potential business return justifies putting your home on the line.

How does a home equity loan work?

If you're wondering how to get a home equity loan, start by looking at how much equity you have in your property and what you're trying to accomplish with the money.

Lenders generally look at factors such as your credit history, income, existing debts, home value, and loan-to-value ratio. Home equity loan requirements and terms can vary by lender, so it's worth comparing interest rates, fees, repayment periods, and monthly payments.

The bigger question, though, is whether borrowing against your home is the right move for the problem you're trying to solve. Home equity can provide useful financial flexibility, but it also turns part of the value you’ve built in your home into debt.

Before moving forward, speak with a loan officer about whether the loan's cost, payment, and repayment timeline fit comfortably within your broader financial plan.