Your Home’s Value Has Soared—Should You Use the Equity?

If your home’s value has jumped significantly over the past few years, you’re sitting on more borrowing power than you might realize. The average homeowner with a mortgage now holds over $207,000 in equity, according to recent data—much of it built through appreciation alone.

But having equity and accessing it wisely are two different things. This guide walks through how rapid appreciation creates borrowable equity, the three main ways to tap it, qualification requirements, and the risks worth weighing before you borrow against your home.

In this article (Skip to...)

• How rapid home appreciation creates borrowable equity
• Three ways to access your home equity after rapid appreciation
• HELOC vs home equity loan vs cash-out refinance
• How you can use the equity in your home
• Risks of borrowing appreciated home equity
• When tapping appreciated equity makes sense
• Compare HELOC lenders and check your eligibility
• FAQs about tapping home equity after appreciation

How rapid home appreciation creates borrowable equity

When home values rise quickly, your equity grows automatically. You don’t have to do anything extra. Your mortgage balance stays the same (or shrinks as you make payments), but your home’s market value climbs. The gap between what you owe and what your home is worth widens on its own.

Lenders use a metric called combined loan-to-value ratio, or CLTV, to figure out how much you can borrow. CLTV compares your total mortgage debt—including any new borrowing—to your home’s appraised value. Most lenders cap CLTV at 80% to 85%, though some go as high as 90%.

Here’s how that works in practice:

Three ways to access your home equity after rapid appreciation

There are three main ways to turn appreciated equity into cash. Each one works differently and fits different financial situations.

How a HELOC works

A home equity line of credit, or HELOC, works like a credit card secured by your home. You get a credit limit based on your equity and CLTV, then draw funds as you need them during a set period—typically 10 years. This is called the draw period.

During the draw period, you often pay only interest on what you’ve borrowed. After it ends, you enter a repayment period (usually 10 to 20 years) where you pay back principal plus interest. Most HELOCs carry variable interest rates, which means your payment can go up or down as market rates change.

• Best for: Ongoing expenses, projects with uncertain costs, or situations where you want to borrow and repay repeatedly
• Typical terms: 10-year draw period, 20-year repayment period
• Rate type: Variable, tied to the prime rate

How a home equity loan works

A home equity loan gives you a lump sum at closing with a fixed interest rate and fixed monthly payments. It’s sometimes called a second mortgage because it sits behind your primary mortgage as a separate loan.

You’ll know exactly what you owe and what you’ll pay each month for the entire loan term. That predictability makes budgeting straightforward. The trade-off is that you can’t re-borrow funds once you’ve paid them back—you’d have to take out a new loan.

• Best for: One-time expenses with a known cost, like a major renovation or paying off high-interest debt
• Typical terms: 5 to 30 years
• Rate type: Fixed

How a cash-out refinance works

A cash-out refinance replaces your existing mortgage with a new, larger one. You receive the difference between your old balance and the new loan amount in cash at closing.

This option resets your mortgage terms entirely—new rate, new term, new payment. If you currently have a low-rate mortgage from a few years ago, a cash-out refi means your entire balance will carry the new (likely higher) rate. That’s a significant trade-off worth considering carefully.

• Best for: Homeowners who want a large lump sum and are comfortable refinancing their entire mortgage
• Typical terms: 15 or 30 years
• Rate type: Fixed or adjustable

HELOC vs home equity loan vs cash-out refinance

Choosing between a HELOC, home equity loan, and cash-out refinance depends on how much you want to borrow, whether you prefer fixed or flexible payments, and whether you want to keep your current mortgage intact.

If you locked in a mortgage rate below 4% or 5% in recent years, a HELOC or home equity loan lets you keep that favorable rate on your primary balance. A cash-out refinance, on the other hand, might make more sense if your current rate is already high or you want to consolidate everything into one payment.

How you can use the equity in your home

The cash from tapping home equity can go toward almost any purpose. That said, some uses are more financially strategic than others.

• Home improvements: Renovations can increase your property value, potentially offsetting the cost of borrowing. Interest may also be tax-deductible when funds improve your home.
• Debt consolidation: Paying off high-interest credit cards with lower-rate home equity debt can reduce your overall interest costs.
• Education expenses: Funding college or vocational training is common, though comparing rates against federal student loans is worth doing first.
• Emergency reserves: Some homeowners open a HELOC as a financial safety net, only drawing funds if an unexpected expense comes up.
• Investment opportunities: Real estate investors sometimes tap equity to fund down payments on additional properties.

Using home equity for discretionary spending—vacations, cars, or everyday expenses—is generally riskier. You’re putting your home on the line for items that don’t build long-term value.

Risks of borrowing appreciated home equity

Tapping home equity isn’t without downsides. Understanding the risks helps you make an informed decision.

A market correction could shrink your equity cushion

Home values don’t always go up. If the market corrects after you borrow, you could end up owing more than your reduced equity supports. This situation—sometimes called being “underwater”—limits your options if you want to sell or refinance later.

Variable interest rates may increase your payment

HELOCs typically carry variable rates tied to the prime rate. When the Federal Reserve raises interest rates, your HELOC payment can increase—sometimes significantly. A rate that seems affordable today might strain your budget if it climbs 2% or 3%.

Your home serves as collateral

Unlike credit cards or personal loans, home equity products are secured by your property. If you can’t make payments, the lender can foreclose. This fundamental risk makes it important to borrow only what you can comfortably afford to repay.

When tapping appreciated equity makes sense

Not every homeowner with equity gains is a good candidate for borrowing. Here’s how to think about whether it fits your situation.

Compare HELOC lenders and check your eligibility

Requirements vary significantly between lenders. Some offer CLTV limits up to 90%, while others cap at 80%. Credit score minimums, fees, and application processes differ too.

Shopping multiple lenders—ideally three to five—helps you find the best combination of rates, terms, and qualification requirements for your situation. Many lenders offer initial quotes without requiring your Social Security number, making it easy to compare options before committing.

FAQs about tapping home equity after appreciation