How to Use Home Equity to Your Advantage

Home equity is one of the primary ways Americans build wealth, and when tapped into, it can offer funds for home improvements, investing, debt repayment, or even an emergency cushion.

In just the first quarter of 2025, homeowners with mortgages saw a collective equity gain of $115 billion, according to Cotality. The average borrower now holds about $302,000 in equity.

Here, mortgage advisor Arjun Dhingra explains some of the best ways you can put your equity to work.

First things first: Use your home equity wisely

We’re not saying you should cash out your home equity and go on a shopping spree, or take out a high-cost HELOC for a fancy vacation.

Instead, we’re going to cover ways you can leverage that equity to actually improve your financial situation — not hurt it.

As mortgage advisor Arjun Dhingra said on an episode of The Mortgage Reports Podcast, “I know some of you might be thinking this sounds eerily familiar to 15 years ago, when everyone was squandering their equity on depreciating assets like boats and cars and other silly expenditures. That’s not what we’re talking about here.”

He continues, “These are responsible ways in which you can put your money to work for you constructively to leave yourself better off financially.”

With that said, here are four of the best ways to use your home equity to your advantage.

1. Funding a home renovation

Home remodeling spending is expected to hit $608 billion in 2025, up from $359 billion in 2020, according to Harvard’s Joint Center for Housing Studies.

With home affordability being out of reach for many, aspiring homeowners are choosing to remodel their existing properties instead.

As Dhingra puts it, “More and more people are realizing that they’re not really in position to sell their home, because where the market is priced, they would have nowhere to go.”

As a result, homeowners are getting creative.

They’re tapping their home equity to add space, install new appliances or smart home technologies, or update their properties to better suit their current needs. This might include adding a home office, putting in a pool or gym, or installing an outdoor kitchen or fire pit for entertaining.

Whether you use a cash-out refinance, home equity loan, or HELOC, re-investing the cash in home improvements is one of the best ways to generate a return on your investment.

2. Paying off high-interest debt

The average American has around $6,730 in credit card debt. These debts typically carry double-digit interest rates with average APRs exceeding 20.68%.

Fortunately, mortgage loans offer much lower interest rates. In many cases, borrowers can get rates as low as mid-6% (especially when using a buydown).

With a cash-out refinance, you have the opportunity to swap your high-interest debts for a low-interest one. If a cash-out refi isn’t right for you, there are other ways to tap your equity that might suit your goals better.

This is known as a ‘debt consolidation refinance.’ It can significantly reduce your monthly payments and save a lot of money in the long run, if done right. You simply:

1. Refinance your mortgage with a higher balance
2. Take the difference in cash
3. Then use that lump sum to pay down credit cards, personal loans, or other debts

This essentially rolls your higher-interest debt into your mortgage and lets you pay it off — more affordably — over time.

“The average U.S. consumer is sitting on credit card debt that might be ranging into interest rate levels that are double digits,” Dhingra said.

“Cash-out refinance rates are much, much lower than this, and in many cases, still in the 6% range. So consolidating that debt, or wrapping it into your mortgage, not only will save you money on a monthly basis, but now makes that debt tax-deductible,” he explains.

That last bit is a nice added perk.

The interest on mortgage loans may be deductible from your annual tax returns (as long as you itemize them). Interest on credit card debts, car loans, and other types of high-interest debt products is not deductible.

3. Investing your home equity

Investing in stocks, bonds, real estate, and other assets can be another smart way to use your home equity.

Say you tap $20,000 in home equity at a 7% interest rate. If you invest it in a diversified index fund yielding an average of 6.5% to 7% per year over the next decade, you could potentially outpace your borrowing costs, especially if you’re contributing for retirement and have tax-advantaged accounts.

“Some people have been pulling out equity and either increasing their contribution to their retirement accounts or putting more money into stock or other types of non-liquid holdings,” Dhingra said.

You could also consider using the cash to buy additional real estate — particularly investment properties you can use to make passive income (like rental properties, Airbnbs, vacation homes, etc.).

The cash you take out can be used for a down payment or, if you have enough equity, to buy another property outright.

This strategy could generate monthly income through rent payments as well as long-term wealth through the additional home equity you’d gain.

4. Boosting your emergency fund

“COVID taught us that the unexpected can happen,” Dhingra said.

To be financially prepared for those unexpected times, it’s important to have at least six months of expenses stowed away. This allows you to comfortably get by in case of a job loss or other emergency without risking your home or other assets.

“You should be able to comfortably make six payments to cover all your bills and debts that are necessary and maintain the current standard of living that you have,” Dhingra said. “That’s what a true emergency or rainy day fund is.”

If you don’t have those six months’ worth of expenses saved up, your equity could help here. Ideally, you’d put the funds in a high-interest savings account, which would grow over time.

Put your equity to work

If you’re like most American homeowners, you’re probably sitting on a good amount of equity.

If you opt to tap it via a cash-out refinance or home equity loan, make sure you do so for the right reasons.

Just as there are many ways leveraging your home equity can improve your finances, it could hurt them as well. Avoid tapping your equity for unnecessary expenses and talk to a financial expert or mortgage advisor before making any moves. They can help you make the best decision for your household.

“It’s really important that you connect with an actual mortgage advisor on this topic — not just an everyday loan officer or e-lender,” Dhingra said.

“This is an important topic. It’s your money, and when it comes to your finances and your overall big picture of wealth, this is a key topic in which you want real, true advice.”