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Top 10 Ways to Use Your Home Equity

What you'll learn: Learn about the most popular uses of a HELOC

EXPECTED READ TIME: 6 MINUTES

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May 7, 2023

As home prices continue to soar, many homeowners are at an advantage when it comes to tapping into their home’s value. However, just because you might have an abundance of equity, it doesn’t mean you know how to use it to your advantage. You can tap into your equity through a home equity line of credit (HELOC). Here are some of the best ways to use your home equity in ways that make sense financially, especially while your home is currently worth more.

What is home equity?

Home equity is simply the difference between how much your home is worth and how much you owe on your mortgage. Each month, as you make timely mortgage payments, the principal balance on your mortgage reduces and home equity is built. If your current mortgage balance is lower than your home’s value, you may be able to convert part of the positive balance into cash. If used wisely, you can use the value of your home to pay for other expenses by opting for a HELOC.

A HELOC is a revolving line of credit that works like a credit card. You only pay back what you spend, plus interest, and you can reuse it as long as the draw term has not expired. This is a great option if you have ongoing projects or if an unforeseen event arises.

10 best ways to use your home equity

There are many ways to use your home equity, however some options may end up hurting your long-term financial health. Here are some smart options for utilizing your home equity.

1. Tackle a home improvement project.

Your next home improvement project can be funded by your real estate equity. However, not all expenses will qualify for tax refunds or add value to your home. To maximize the funds from you home equity, consider these common home improvements that may qualify for tax deductions. Consult a tax adviser for further information regarding the deductibility of interest and charges.

Replacing an HVAC system
Energy-efficient improvements
Resurfacing your driveway
A new roof
Decks and porches
Home improvements for medical purposes
Installing insulation
New windows
Plumbing and electrical
Swimming pool
Additions
Adding a bathroom

2. Reduce your interest rate with a refinance.

Say goodbye to pesky private mortgage insurance (PMI) payments and high interest rates when you opt for a refinance. A refinance is a new loan which may offer better interest rates and a potentially lower monthly payment than you had on your original loan depending on market conditions.

3. Use the extra money to consolidate debts.

Using your home equity to consolidate outstanding debts is beneficial because a home equity loan or line of credit typically has a lower interest rate than other types of loans. If you are saddled with thousands of dollars’ worth of credit card debt, this may be a smart financial move.

4. Cover outstanding medical expenses.

If you are struggling to pay your outstanding medical bills or those of a family member, using your home equity could provide some relief.

5. Pay off student loan debt or your child’s college tuition.

Whether you have your own student loan debt to pay off or need to help support your children with furthering their education, using the equity in your home is an option.

6. Make retirement adjustments.

If retirement is just around the corner, there are many ways you can use your home equity to improve your quality of life. You can use the funds to downsize your home, generate additional retirement income, balance stock market investments, or even make accessibility renovations if your physical needs change.

7. Add an addition to your home.

If your space is getting cramped, but a move just isn’t in the cards, using the equity in your home to increase square footage is ideal. Instead of opting for an expensive move, adding a game room, bathroom, or bedroom can save you money in the long-run.

8. Make a down payment on an investment property.

Are you ready to start your real estate investing career? Depending on the health of your credit score you will need to put down a minimum down payment which you could pay with the home equity of your primary home as collateral. The rental home should eventually cover the costs of your current mortgage payments and so on as you invest in more real estate to bolster your wealth.

9. Start a new business.

Whether you are building your own start-up, freelancing, or opening a franchise, you can tap into your home equity to help you access funds to pay for potentially expensive start-up costs, instead of using your personal savings.

10. Start an emergency fund.

Sometimes life happens, and when unforeseen events occur, it can be smart to use your home equity in some emergency situations such as losing your job, medical bills, or short-or long-term disability.

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Disclosures

^*Prime Rate is 6.750% as of December 12, 2025. The APR for this Home Equity Line of Credit (HELOC) is based on prime plus a margin and can change monthly. Fixed Rate Advances will be amortized over the Fixed Rate Advance Term, with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin, and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than 6.750% for primary residences and second homes.

Annual Fee: Notwithstanding the foregoing, an annual fee of $99 will be assessed on each account anniversary.
Home equity lines of credit (HELOC) are variable rate loans and the interest rate is subject to increase after consummation of the loan on monthly basis. Closing costs range between $500 and $8,500 for credit lines of $500,000. Contact a representative for additional details.

Appraisals: PenFed will attempt to establish value via an independent method. If that method is unsuccessful, or the value is not sufficient for the amount requested, an appraisal will be required regardless of CLTV. An appraisal is always required in the following circumstances:

For all loans with a loan amount greater than $400,000.

If an appraisal is required, it must be ordered by PenFed. You will be contacted for authorization and payment prior to ordering. Appraisal fees average $550 to $850 (some run higher).

Closing Cost Credit: PenFed will pay most closing costs associated with a home equity line of credit (HELOC), which includes credit report, flood certification, settlement/closing, property ownership and encumbrances search, recording, property search, and quick close. Member is responsible for any city, county, and/or state taxes if the subject property is located in FL, LA, MD, MN, NY, TN, or VA. If an appraisal is required, the member, who is responsible for the fee whether or not the loan closes, will pay the cost.

Interest may be tax deductible, consult a tax advisor for further information regarding the tax deductibility of interest and charges.

Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Draw Period. During your Draw Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.

Fixed Rate Advances will be amortized over the Fixed Rate Advance Term with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than 6.750% for primary residences and second homes.

Property Insurance: Property insurance is required.

Multiple PenFed Loans: Multiple PenFed Equity loans and HELOCs are available as long as the member and collateral qualify (except Texas). For Equity loans and HELOCs the total indebtedness cannot exceed $500,000 for all PenFed Equity and HELOCs combined.

PenFed does not lend on:

Mobile homes
Co-ops or time-shares
Properties that are currently listed on the market for sale
Commercial property or property used for commercial purposes, even if a residence is part of the property
Undeveloped property (land only)
Properties with more than 4 units

Properties that are currently under major construction/renovations: Property must be fully livable, with no safety issues. (Examples: no missing rails from stairs/decks, no open walls with wires showing, missing kitchen appliances/counters, missing bath fixtures or unfinished pool).

Additional limitations may apply

Home Equity Line of Credit:

This Account has a Draw Period of 10 years, followed by a repayment period of 20 years.
If only minimum payments are made during the draw period, the loan balance will not decrease.
In Texas, the maximum CLTV available is 80% on owner occupied properties. Additional restrictions apply in Texas, so please ask a representative for details.
In all other states, the maximum CLTV is 85% on owner occupied properties and second homes. Additional restrictions or requirements may apply based on application characteristics.
Property type of Condo has a maximum CLTV of 80%.
The maximum CLTV available is dependent on credit qualification.
Rates vary depending on owner occupancy and CLTV and other loan criteria.

Minimum Loan Amount Requirements in all States:

For an owner occupied property or second home the minimum loan amount is $25,000 and the maximum amount is $500,000 with a CLTV of 85% or less of the fair market value.

Other terms and conditions apply; call 844-918-4307 to speak with a representative for details. All rates and offers are subject to change without notice. To receive advertised product, you must become a member of PenFed.