Home Equity

Home equity represents the difference between what your home is worth and what you still owe on it. If your home is valued at $400,000 and you have a $250,000 mortgage balance, your home equity is $150,000. Equity builds through mortgage principal payments and property value appreciation.

Homeowners can access their equity through several financial products: home equity loans provide a lump sum at a fixed rate, home equity lines of credit offer flexible revolving credit, and cash-out refinancing replaces your mortgage with a larger one. These options typically offer lower interest rates than unsecured debt because your home serves as collateral.

Home equity is often a household's largest asset and plays a critical role in retirement planning and wealth building. However, it is an illiquid asset that requires selling or borrowing against the property to access. Over-leveraging home equity with excessive borrowing increases foreclosure risk and was a major factor in the 2008 financial crisis.