How to take out equity from your home and save money monthly

Your home is more than just a place to live, it’s a powerful financial foundation. As home values rise and you pay down your mortgage, you build a valuable cushion known as equity. If you’ve ever wondered, "How can I release equity from my house without selling it?" you’re in the right place.

Tapping into this wealth is a proactive step toward securing your financial future. Whether you want to fund home renovations, streamline your budget through debt consolidation, or build a safety net, learning how you release equity from your home is the first step. Below, we’ll help you calculate your equity, explore why borrowing against it makes sense, and compare your best options.

How does home equity work?

Equity is the difference between your home’s value and how much you owe on it. It’s a source of capital you can use to consolidate high-interest debt, cover financial emergencies, and pay for long-term projects.

The easiest and most direct way to build equity is to reduce the amount you owe on your home. This will happen naturally over time as you pay down your mortgage.

You also gain equity as the value of your home increases. Over time, home values can generally appreciate. That said, between the first quarter of 2025 and the first quarter of 2026, U.S. home prices decreased from $423,100 to $403,200. But this doesn’t mean your home’s price will decrease each year. The economy and the state of the housing market will have an influence on the value of houses.

How do you calculate your home equity?

Discovering how much wealth is tucked away in your property can be empowering. Calculating your home equity is a straightforward process that requires just two key pieces of information: what your property is worth today and what you still owe on your mortgage.

By looking at these two figures side by side, you can quickly map out your borrowing potential. Let’s break down the first step in that math.

Determine your home’s market value

The first step in determining how much equity you have is to estimate your home's current market value. Because real estate markets are dynamic, your home's value isn't a fixed number; it shifts based on demand, economic trends, and localized growth. You can start getting a sense of your property's worth by looking up what comparable homes, often called comps, have recently sold for in your immediate area.

When you are researching real estate comps, try to look for houses that match yours as closely as possible. Common factors affecting home value include:

• Its age: Older homes may have character, but newer homes often benefit from modern building codes and updated systems.
• Its location: Proximity to busy streets, commercial zones, or quiet cul-de-sacs impacts buyer demand.
• The size and shape of the lot: A large, usable backyard or a flat lot generally adds more value than a steep, unbuildable slope.
• The number of bedrooms and bathrooms: Houses with a higher count of these essential rooms typically command higher prices.
• Its total usable square footage: This includes livable above-ground space, and sometimes finished basements, depending on your local market standards.
• Access to amenities: Being close to public transportation, parks, shopping, or a highly rated school district heavily influences desirability.
• Neighborhood safety: Low crime rates and quiet streets are consistently high priorities for buyers.
• Recent renovations and upgrades: Remodeled kitchens, updated roofing, or a new HVAC system can give your value a significant boost.

Pro tip: Online estimators are great for ballpark figures, but lenders require a professional appraisal to determine your official home value. A certified appraiser will personally evaluate your property to establish a legally recognized valuation.

Find your remaining mortgage balance

Once you know your home’s value, the next step in calculating your home equity is to look up how much you owe on your mortgage. You can easily find your current balance by logging into your online account, calling your lender, or checking your most recent mortgage statement.

Keep in mind that your standard statement balance might be slightly different from an official loan payoff amount. Because interest accrues daily throughout your mortgage billing cycle, a final payoff figure includes the remaining principal plus any interest accumulated since your last payment. While your latest statement balance is perfect for a quick equity estimate, lenders will request an exact payoff statement when you apply for financing.

Run the numbers

With those numbers on hand, you can subtract the amount you owe on your mortgage from your current home value to get an estimate of your equity. For example, if your home is valued at $500,000 and you have a balance of $200,000 on your mortgage, your home has $300,000 in equity. You can skip the manual math entirely and map out your borrowing potential in seconds by plugging your numbers into the Rocket Mortgage home equity calculator.

However, you cannot turn your full equity amount into cash. Most lenders limit how much you can borrow based on your loan-to-value (LTV) ratio, typically requiring you to keep at least 15% to 20% equity untouched in your home. In the example above, an 80% or 85% borrowing limit means that you may be able to borrow between $240,000 and $255,000 against the value of your house.

Why consider taking out home equity?

Choosing to tap into your home's equity is a proactive, strategic step toward financial flexibility. Because your loan is secured by your property, home equity financing often unlocks significantly lower interest rates than traditional, unsecured borrowing methods like personal loans or credit cards. This structural advantage gives you a powerful tool to streamline your budget, fund major life milestones, and potentially save thousands of dollars over time.

Every homeowner’s financial journey is completely unique. Depending on your current needs and long-term goals, there are several proven strategies you can use to make your equity work for you.

• Consolidating high-interest debt: Carrying balances on high-interest credit cards can quietly drain your monthly budget. According to Federal Reserve economic data, commercial bank interest rates for credit card accounts assessed interest consistently average over 21%. By using a lower-rate home equity product to clear those balances, you can merge multiple bills into a single, predictable monthly payment, drastically slashing your total interest costs.
• Funding home renovations: Investing back into your property is a wonderful way to boost your comfort while simultaneously increasing your home's future value. When you use your equity to finance major upgrades, you can skip the steeper interest rates tied to non-equity products. Utilizing structured options like a refinance for home improvement ensures you have the capital required for long-term projects without straining your day-to-day cash flow.²
• Maximizing potential tax deductions: Beyond lower interest rates, tapping your equity for property upgrades comes with distinct financial incentives. Per Internal Revenue Service (IRS) guidelines, the interest you pay on a home equity loan or line of credit may be completely tax-deductible if you itemize. To qualify, you must use the borrowed funds specifically to "buy, build, or substantially improve" the qualified residence that secures the loan. Taking the time to explore these tax deductions for homeowners can provide a welcome buffer when tax season rolls around.

3 best ways to take equity out of your home

There are several ways to borrow your equity. Depending on the terms you want, a home equity loan, home equity line of credit (HELOC), or cash-out refinance may be right for you. Let’s go over each option.

Home equity loan

A home equity loan is a type of second mortgage that lets you borrow against your built-up equity. When you are approved for this type of loan, you receive your funds as a one-time lump sum of cash. This makes it a highly structured option for upfront expenses, as you repay what you borrow through fixed monthly payments over a set timeline, most commonly ranging from 5 to 30 years, in addition to your primary mortgage payment.

Rocket Mortgage offers a Home Equity Loan.¹ Get in touch with one of our Home Loan Experts to discuss your options.

Because a home equity loan functions as a separate, second mortgage, it allows you to tap your wealth without altering the terms of your original home loan. To qualify, lenders generally evaluate your overall financial health, looking for a credit score of at least 680, a debt-to-income (DTI) ratio below 43%, and a maximum LTV ratio of 80% to 85%. You will also need to prepare for standard closing costs, which typically range from 2% to 5% of the total loan amount.

To help you decide if a lump-sum payout matches your financial goals, consider this summary of home equity loan pros and cons:

Home equity line of credit (HELOC)

Another way you can borrow your equity is through a home equity line of credit (HELOC), which is another type of second mortgage. Unlike a traditional loan that provides a one-time lump sum, a HELOC works much like a credit card. Your equity establishes a revolving line of credit that you can use as needed during a set time frame known as the draw period.

The draw period typically lasts for 10 years. During this time, you can borrow funds up to your credit limit, repay them, and borrow them again, all while making interest-only payments on the exact amount you have used. Once the draw period expires, you enter the repayment period, which usually lasts 15 to 20 years. During repayment, you can no longer take out money, and your monthly payments will increase to cover both the remaining principal and interest.

When reviewing your application, lenders typically evaluate several key financial benchmarks to determine your approval limit. According to Experian's® HELOC qualification guidelines, borrowers generally need a solid credit score of 680 or higher, a DTI ratio capped at a maximum of 43%, and proof of income and homeowners insurance. Meeting these standards ensures you maintain a safe equity buffer in your home while proving you can comfortably manage the new monthly payments. While a HELOC is a flexible option for many financial journeys, it’s important to note that Rocket Mortgage does not currently offer this specific product.

To help determine if this pathway aligns with your goals, consider this summary of HELOC pros and cons:

Cash-out refinance

If you don’t want to take on a second mortgage, you could choose a cash-out refinance. This strategy allows you to replace your existing first mortgage with an entirely new loan based on your home’s current value. The new mortgage is written for a higher amount than what you currently owe. You use these new funds to pay off your original loan balance, and you keep the difference as a lump sum of cash.

Because you are completely replacing your primary home loan, your new mortgage will reset with a brand-new term, most commonly a 15-year or 30-year fixed-rate mortgage. To qualify, lenders generally look for a credit score of at least 620, a DTI ratio under 45%, and a maximum LTV ratio of 80%, meaning you must leave at least 20% equity untouched in the home. Additionally, because this is a brand-new primary mortgage, you will need to pay standard closing costs, which typically range from 2% to 5% of the total loan amount. You then repay everything you borrow as a single, predictable monthly payment.

To see how this strategy stacks up against other borrowing methods, it helps to review the core cash-out refinance vs. home equity loan advantages and drawbacks:

Which home equity financing method is right for you?

With several ways to draw on your equity, it may not be immediately obvious which option makes the most sense for your financial roadmap. Finding the perfect fit requires you to think carefully about your long-term goals, consider the specific pros and cons of each loan type, and weigh your own personal comfort with taking on additional debt. Beyond your immediate needs, you should also closely evaluate critical factors like current interest rates, long-term payment affordability, and specific qualification requirements to protect your monthly budget.

If you’re looking for a lump-sum cash payout soon and are comfortable managing a second mortgage alongside your primary loan, a home equity loan could be an excellent path forward, while a HELOC might be the right fit if you prefer flexibility and want to access smaller amounts on an as-needed basis over several years. Should you feel uncomfortable juggling two separate mortgage payments and prefer a single, predictable monthly obligation, a cash-out refinance could work for you. To help you compare potential monthly payments and determine if resetting your loan term aligns with your goals, you can experiment with different numbers using our refinance calculator.

What are the alternatives to releasing equity from your house?

If you want to avoid the risks of home equity financing or do not currently meet the lending guidelines, you are not out of options. Tapping into your home is a major decision, and it is completely normal to look for other avenues that do not put your property on the line as collateral. Fortunately, there are several viable home equity loan alternatives that can provide the financial flexibility you need without altering your current mortgage situation.

Depending on your financial goals, credit profile, and timeline, a different type of borrowing structure might be a safer or more convenient fit for your journey. Consider these common pathways as you weigh your next steps:

• Personal loan: This is an unsecured loan that provides a lump sum of cash upfront, meaning you do not have to pledge your home as collateral. Because they do not require an appraisal or extensive property underwriting, personal loans typically offer much faster funding times, making them an excellent HELOC alternative for smaller financial needs.
• Personal line of credit: Similar to a HELOC, a personal line of credit provides flexible, revolving access to cash that you can draw from as needed. However, because it is entirely unsecured, your approval and interest rate will rely heavily on your personal credit history rather than your home's value.
• 0% APR credit card offer: For smaller home upgrades or short-term expenses, a credit card featuring an introductory 0% APR promotional period can be a highly effective tool. If you have strong credit and can fully pay off the balance before the promotional period expires, you can effectively borrow the money for free.
• Rent-back agreement: If you’re planning to sell your home but need immediate access to cash before moving out, you can negotiate a post-closing rent-back agreement with the buyer. This allows you to finalize the sale, receive your full equity payout, and temporarily lease the property back from the new owner while you secure your next living arrangement.
• Retirement account loan: Some employer-sponsored retirement plans, such as a 401(k), allow you to borrow against your vested balance. These loans do not require a credit check, and the interest you pay goes directly back into your own retirement account, though you must carefully review the repayment rules to avoid unexpected tax penalties.

FAQ

Let’s cover a few questions that you might still have about accessing your home equity.

Is it a good idea to take equity out of your home?

Whether a home equity loan is a good idea depends entirely on your individual financial health and goals. Tapping your equity offers major benefits, like lower interest rates to consolidate debt or fund value-adding renovations, but it also carries the serious risk of foreclosure if you default. Suitability varies from borrower to borrower, so you must carefully weigh the upfront savings against your long-term budget.

Is a reverse mortgage a good way to take out equity?

A reverse mortgage can be an excellent option for homeowners aged 62 or older who want to convert their equity into tax-free cash without making monthly mortgage payments. However, the loan must eventually be repaid when the homeowner moves out, sells the property, or passes away. While it is a helpful tool for seniors looking to supplement their retirement income, Rocket Mortgage does not currently offer this product.

Can I borrow against home equity if I have bad credit?

Yes, you can still borrow against your equity with less-than-perfect credit, but it can be more challenging. Because your home serves as collateral, some lenders are willing to accept lower credit scores if you have significant equity and a low DTI ratio. However, getting a home equity loan with bad credit typically means facing stricter borrowing limits and higher interest rates.

What is the cheapest way to get equity out of a house?

This depends on your personal situation, your overall credit profile, and which terms make you most comfortable. You will have to compare costs for a cash-out refinance, home equity loan, and HELOC based on how much you want to borrow and your budget.

What are the requirements to take equity out of your home?

To take equity out of a house, you would generally need to meet the same requirements as a first mortgage, which include a stable source of income, good credit score, and low debt-to-income ratio, as well as sufficient equity to borrow.

The bottom line: You have options for releasing equity from your house

Sometimes unexpected expenses come up, or you may want to use your home equity for a meaningful project, a debt consolidation strategy, or a special family celebration. Releasing equity from your house is a powerful way to fund these milestones, but it requires a careful look at your financial landscape. By thoroughly comparing the lump-sum structure of home equity loans, the revolving flexibility of HELOCs, and the clean slate of a cash-out refinance, you can confidently weigh the benefits against the risks. Checking your current home value, remaining mortgage balance, and qualification criteria will ensure you choose a path that fits your long-term roadmap.

As you consider your options and the risks, you can come to a decision that is right for your personal situation. If you are interested in tapping into your equity to streamline your finances or enhance your living space, let us at Rocket Mortgage help you apply for a home equity loan that empowers your financial future.

¹ Home Equity Loan Product is a second standalone lien and may not be used for piggyback transactions. Valid for loan amounts between $45,000.00 and $500,000.00 (minimum loan amount for properties located in Michigan is $10,000.00). Not available on Ameriprise products. Additional restrictions, terms, and conditions apply. Must meet qualification requirements. This is not a commitment to lend.

² Refinancing may increase finance charges over the life of the loan.

Rocket Mortgage is a trademark of Rocket Mortgage, LLC or its affiliates.