What is Home Equity: Opportunities and Risks

What Is Home Equity: Opportunities and Risks

By Kristi Waterworth – Updated Jul 2, 2025 at 11:44 PM

Key Points

Home equity, the value of your home minus debts, can offer flexible, low-interest financing.
You can use home equity for buying property, remodeling, or starting a business.
Home equity loans, HELOCs, cash-out refinances, and reverse mortgages are ways to access it.

With home prices soaring, it's a great time to own a home if you were lucky enough to buy before the pandemic (or even during, in some areas). Along with those high home prices come high gains in home equity for buyers who have lived in their houses for a while. Let's explore what home equity is and what you can do with it.

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Pretty single-family house with a turquoise door. — Image source: Getty Images.

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Interest Rate

An interest rate is the cost of borrowing money or the premium you get for lending money. Learn how interest rates affect the economy.

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Depending on your interest rate, there are many ways to tap your home equity to create additional value, including:

Borrowing a down payment for another property. If you've been thinking about buying a rental home or even just want to help a child purchase their first home, you can tap your equity to make this possible.
Remodeling your home. Although remodeling will almost never return your investment dollar-for-dollar, there are plenty of features that will make it possible to stay in your home longer or increase your enjoyment of it, which has a whole different kind of value.
Taking out cash to start a business. A business is a big risk, but there's no reward without first taking a chance. It can be hard to get enough money together for a business venture, but if you have plenty of home equity and can make regular loan payments, tapping your equity to start a business can be a solid move.

You can technically tap your equity for any reason, even if you just want to spend a year traveling around the world. However, some reasons for equity loans make more financial sense than others.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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