With home values rising dramatically in recent years, many homeowners have accumulated significant wealth through their home’s equity, which is calculated by taking the value of a home and subtracting the homeowner’s current loan balance. In fact, you’ve probably heard about people who have “taken money out of their home” by getting a home equity loan, which can be used for all kinds of purposes, including home improvements.  

If you’re interested in making your home equity work for you, there are several options available. Whichever option you choose, however, you will need to submit a loan application, qualify for financing, and get an appraisal to verify your home’s current value.  

Fixed-Rate Home Equity Loans 

With a fixed-rate home equity loan, you can borrow one lump sum and pay the loan back at a fixed interest rate over a set period of time. A home equity loan works best when you have a one-time project that will be completed in a fairly short amount of time, and you know the specific amount of money you need. 

For example, let’s say you want to remodel your kitchen. Your home is appraised at $500,000, and your current loan balance is $325,000. This means you have $175,000 in home equity. In general, lenders will let you borrow up to 80% of your home’s overall value. So, assuming you qualify, you would be able to get a loan up to $75,000 for your kitchen project. 


A home equity line of credit, or HELOC, works a little differently. A HELOC has flexible terms and an adjustable interest rate that is usually tied to a specified index. HELOCs allow you to borrow money as you need it and pay interest only on the amount of money you take out. In general, a HELOC is usually the best option if you’re doing home improvements over a longer period of time and aren’t sure how much money you need.  

Be warned, however. HELOC rates can change over time—much like credit card rates—and there’s no way to predict when. If rates go up, so will your payment. Some borrowers have also gotten themselves into trouble with HELOCs by using the money to live beyond their means. 

Cash-Out Refinance 

There’s another option for tapping your home’s equity – a cash-out refinance. This involves refinancing your current loan while taking out any additional money you need in a lump sum. Let’s say you need $50,000 to update your home’s bathrooms. Taking our example above, you could refinance your current $325,000 loan plus the $50,000 you need into a new mortgage for $375,000.  

Of course, if you refinance your mortgage, you’ll be subjected to whatever interest rates are available at the time, as well as closing costs. Your payment could also be significantly higher or lower than it was before, depending on the loan and terms. 

What Can I Use the Money For?  

Basically, you can use the funds for just about anything you desire – including paying down debt, paying for college, starting a business, or even a vacation to the Bahamas. However, most homeowners use home equity loans to make home improvements, such as a bathroom remodel or adding a room.  

There are a number of reasons why home equity loans are great for home upgrades. For one, the interest rates are typically much lower than rates for credit cards or personal loans. Plus, putting the money back into your home can significantly increase its value.    

The best way to make your home’s equity work for you is to use the funds you receive as an investment. Maybe the investment is improving your home so you’re able to sell it for more money. Or maybe it’s investing in your children’s future by helping them through college and increasing their future earning potential. Or perhaps you want to use a home equity loan to help buy a rental property, which allows you to earn extra income.  

Just keep in mind that the money you borrow isn’t “free money” – it has to be paid back. As long as you can afford the extra payments, however, a home equity loan or line of credit can help you achieve your personal goals, whatever they may be.  

Have more questions about home equity loans, HELOCs, or cash-out refinances? Give us a call at 1-877-552-2242 or contact us at inquiries@rightbyyoumortgage.com, and a Right By You Mortgage expert will be more than happy to help.