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Can You Use Home Equity To Take Credit?


The estimated value of your property minus the due mortgage and debts is your home equity. Do you want to know if you can use your home equity to get credit? To learn more, read this blog.

Home equity

Source: Freepik

You spend your days creating and living the best memories in your home but the best feeling to become a homeowner is when you gain equity.

Your home equity is after deducting your mortgage and debts from the current worth of the home. You gain more equity by repaying your mortgage and debts.   

Suppose your home is worth $500,000, and you owe 350,000 on your mortgage. You have $150,000 as home equity. If you have other debts and loans of $50000, then the present home equity becomes $100000. As you repay your loans, you gain on home equity when you pay off your mortgage and other debts in full.  

If you bought a house for $450,000 and put down a 20% down payment, which is $90,000, you are taking a mortgage of $450,000-$90,000=$3,60,000. Your current home equity, in this case, is $90,000 at the start of your mortgage.   

Can I use home equity to take credit?   

Your available home equity can get you further credit. Interest rates on loans backed by home equity are typically lower than those on other forms of loans. Using your home’s equity, you can reap the benefit of a lower-cost loan.  

You can also use a line of credit to help finance home repairs, your child’s education, or the down payment on a second home. If you already have a mortgage on your house, then you need the lender’s permission to register a second mortgage on the same title.  

What kinds of credit can I get using my home equity?   

The following are the credit options that you can get by pledging your home equity as collateral. 

1. Refinancing   

You can get a loan for up to 80% of your home’s appraised value. You must subtract the following from that amount:   

  • your mortgage’s outstanding balance   
  • if you have any other loans secured against your house,    
  • your cumulative HELOC,   

You might get the approval for refinancing your home based on the following scenario:   

  • Get a second mortgage on your home  
  • Get the Home Equity Line of Credit (HELOC)  
  • Get home equity credit or loan  


Your home is worth $400000. 

The maximum home equity loan you can get is 80%, which is $320000.   

Subtract all remaining mortgage, $150000, for example.   

Home equity for collateral is $170000.   

Owing a house
Source: Pixabay

2. Second Mortgage   

You can take a second mortgage against your house too. Borrowing 80% of the appraised value of the home is the balance on the first mortgage. You must pay off your first mortgage and your second mortgage simultaneously if they both are running at the same time.   

It could be quite burdensome to service both mortgages, and if you default, you run a risk of losing your home. Here, you will repay both the first and second mortgages.   

3. Home equity line of credit is an effortless process (HELOC)   

A HELOC functions similarly to a traditional line of credit. A ready credit facility that allows you to borrow money, subject to your credit cap. When you need funds, you can use HELOC.   

You repay the loan and then borrow again. Sounds simple? You pledge your home equity as collateral to get this line of credit.   

4. Reverse Mortgage   

A reverse mortgage allows you to get 55% of the current home value. You need to reach 55 years or above to qualify for a reverse mortgage. Your home equity can get you a refinancing, second or a reverse mortgage, and HELOC. 

To conclude, these several ways can help you guide on how you can use equity to take credit.

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