See how much equity you have and what you could borrow with a HELOC or home equity loan.
Home equity is the difference between your home's current market value and what you owe on it. Equity builds through two mechanisms: paying down your mortgage principal and home value appreciation. In a normal market, both work simultaneously to grow your equity over time.
A HELOC (Home Equity Line of Credit) works like a credit card secured by your home. You get a revolving credit line and only pay interest on what you borrow. Rates are typically variable, tied to prime rate. A Home Equity Loan gives you a lump sum at a fixed interest rate, repaid in fixed monthly installments. HELOCs offer flexibility; home equity loans offer predictability.
Most lenders cap the Combined Loan-to-Value (CLTV) at 80-85%, meaning your existing mortgage plus the new loan cannot exceed 80-85% of your home's value. On a $400,000 home with a $250,000 mortgage at 85% CLTV: $400,000 x 0.85 = $340,000 maximum total debt. $340,000 - $250,000 = $90,000 available to borrow.
Home equity is commonly used for home improvements (which may increase the home's value), debt consolidation (replacing high-interest credit cards with lower-rate secured debt), education expenses, or emergency funds. Avoid using home equity for consumables, vacations, or speculative investments. Remember: your home is the collateral. If you cannot repay, you risk foreclosure.