How To Use Home Equity To Build Wealth: 6 Solutions

Your equity isn't just a number on paper! It's real wealth that can be strategically leveraged for your financial future. Home equity represents one of the most powerful financial resources available to you as a homeowner, right? It offers multiple pathways to build long-term wealth and improve your financial stability. 

In today's financial landscape, making smart decisions about accessing and using your home equity has never been more important. Whether you're looking to eliminate high-interest debt, invest in additional real estate, or prepare for retirement, your home's equity provides options that you don't even realize.

That’s why it's worth talking about! 

In this post, I’ll help you break down 6 strategic ways to put your home equity to work- without selling your house, draining your savings, or taking on unnecessary risk.

Using Home Equity To Pay Off Debt (and More)

If you're carrying high-interest debt from credit cards, auto loans, or personal loans, using your home equity to eliminate these obligations might be one of the most immediate ways to improve your financial position. 
Many homeowners find themselves surprised by how much they can save through this strategic approach.

1. Home Equity Line of Credit (HELOC)

 A Home Equity Line of Credit (HELOC) offers homeowners the opportunity to borrow against their property's value while maintaining ownership of their residence. It functions much like a credit card, allowing you to borrow against the equity in your home up to a specified credit limit. However, unlike a credit card, a HELOC is secured by your home. 

It comes with two distinct phases: the draw period, where you can access your home equity, and the repayment period. In the current lending environment, financial institutions typically allow homeowners to borrow up to 80% of their home's value minus what they still owe on their mortgage. 

HELOCs typically feature a 10-year draw period during which homeowners can access funds as needed, followed by a 15-year repayment period when the principal and interest must be paid back in regular monthly installments. 

The downside of this option is that a HELOC does not include a fixed interest rate. Managing monthly payments is crucial, as missing them could lead to foreclosure.  This could be a serious problem, especially when you’ll likely already face a higher payment during the repayment period.

2. Home Equity Loan (HEL)

Home equity loans represent one of the most straightforward mechanisms for accessing the value accumulated in your property. Also known as a second mortgage, a Home Equity Loan offers a fixed interest rate and consistent monthly payments. 

It doesn't replace your existing mortgage, allowing you to retain a favorable interest rate if you already have one. Your monthly payments cover both principal and interest on the new loan amount while you continue paying your existing mortgage.

For homeowners who prefer predictability in their financial planning, the fixed-rate structure of these loans provides welcome stability in an uncertain economic environment. You'll know exactly what your payment will be for the entire term of the loan, making budgeting much more straightforward.

When used thoughtfully, home equity loans can serve as powerful wealth-building tools across multiple domains, be it for investment purposes, or business or retirement planning. While this may be a suitable option for many, keep in mind that since this is a loan based on your home’s value, you may become unable to sell your home or move should the value of your home decrease.

3. Cash-out Refinancing

Cash-out refinancing represents a comprehensive approach to accessing home equity that replaces your existing mortgage with an entirely new loan for an amount greater than your current mortgage balance.
The process follows a structured methodology that begins with an accurate assessment of your current equity position.

However, it's important to recognize that cash-out refinancing fundamentally alters your mortgage terms, potentially affecting both your interest rate and loan duration. 

In periods of rising interest rates, this consideration becomes particularly significant, as the new loan may carry a higher rate than your existing mortgage. Additionally, you are increasing your overall debt with this method. If you are already struggling with your debt-to-income ratio, this may not be your best option. 

Careful financial modeling comparing the wealth-building potential of the accessed funds against the increased borrowing costs over the life of the loan is essential.

4. Home Equity Investment

Equity sharing agreements, a newer option, let homeowners "sell" a share of their home's future appreciation to investors. With an HEI, investors provide you with immediate cash in exchange for a predetermined percentage of your home's future appreciation. 

This fundamentally different approach eliminates interest payments and monthly debt service obligations while still allowing you to access substantial capital from your property's value.

This can let you use your home equity to build wealth since it’s not a loan, but there are risks because you may end up paying the investor way more than what was given to you originally.

5. Reverse Mortgage

It is designed for homeowners aged 55 or older, a reverse mortgage allows you to access your home equity without monthly payments. The loan is repaid when you no longer live in your home through other assets or the sale of the home. 

This option provides flexibility in receiving funds as a lump sum, fixed monthly payment, or line of credit. For many Phoenix retirees, reverse mortgages offer compelling advantages:

• Age-in-Place Security: Stay in your familiar neighborhood and home without worrying about making mortgage payments.
• Enhanced Cash Flow: Supplement fixed retirement income without selling investments or drawing down retirement accounts prematurely.
• No Income Requirements: Qualification is based primarily on age and equity, making these accessible to seniors with limited income but substantial home value.

6. Innovative Solutions From The District PHX

Traditional home sales may only be a good fit for some people considering using equity in a home. The District PHX offers two alternative ways to access home equity, catering to different circumstances.

Lock and Move Program

The Lock & Move program allows homeowners to lock in their equity without the hassles of traditional home sales like listing, showings, and extended closing times.

Here’s how it works:

• We Buy Your Home As-Is: No need to worry about repairs, showings, or waiting months for an offer. You Get a Fair Cash Offer
• You Get a Fair Cash Offer: Quickly access the value of your home. You Move When You’re Ready
• You Move When You’re Ready: Choose a closing date that fits your timeline, giving you full control.

No hidden fees. No surprises. Just a simple, transparent process to help you move forward.

Unlock & Stay

The Unlock & Stay program is a residential sale-leaseback in which you sell your home to The District PHX without the hassle of moving. Instead, you lease your home and can use your home’s equity much faster than other means.

Here’s how it works:

• Sell Your Home: Receive a fair cash offer for your property with no repairs, showings, or waiting. You Get a Fair Cash Offer
• Lease It Back: Stay in your home by signing a flexible lease agreement after the sale. You Move When You’re Ready
• Gain Financial Freedom: Free from maintenance costs, property upkeep and housing taxes.

This program is ideal for homeowners facing financial challenges, wanting to avoid foreclosure, or simply looking for a flexible option to get their  home equity.

How Can We Help?

Whether you plan to pay off debt, build your wealth, or something else, deciding how you access your home’s equity is the very first step. 

At The District PHX, we want you to truly understand the process as well as all of your options to access your equity so you can make the best choices for you and your family. 

Whether opting for traditional methods or exploring our innovative solutions, you can (and should) tailor your approach to meet your financial goals. 

For more information on what The District PHX can offer about your specific home situation, contact us right away.