By Lauren Rosales-Shepard, Content Writer



You’ve probably heard that your home is your most valuable asset, that you (and so many homeowners across the country) are sitting on a tremendous amount of equity. But what does that mean, exactly? And what is it good for, in practice?

“Home equity” is the difference between the market value of your home and the amount you owe on your mortgage–i.e. subtract the amount you owe on your mortgage from your home’s current market value and, voilà, you’ve got your home equity.

Homeownership allows you to build equity over time both as you pay down your mortgage, and property values appreciate. This equity contributes to your overall net worth; it’s a valuable asset that can provide financial security, flexibility, and opportunities for homeowners. Because home equity isn’t exactly a tangible thing, there are multiple different products that can help you tap into that home equity and translate it into something liquid: cash. Traditionally, homeowners have used HELOCs, home equity loans, cash-out refinances, or reverse mortgages to harvest their equity. By leveraging home equity wisely and responsibly, you can maximize its potential benefits, enhance your overall financial well-being, and even build wealth. How is that? Read on to find out.

Make Home Improvements

When you make strategic home improvements, you can increase your home’s value. And as we described above, as your home’s value goes up, so, too, does your equity. That said, the key word here is strategic--not all renovations are equal, when it comes to adding value to a home.

• Curb Appeal: A well-maintained and attractive exterior can make a positive first impression on potential buyers and increase your home's market value. Enhancing the exterior of your home with landscaping, fresh paint, updated siding, or a new roof can all accomplish this objective.
• Kitchen Renovation: The kitchen is often considered the heart of the home and a key selling point for buyers. Upgrading outdated appliances, countertops, cabinets, and fixtures can modernize the space and lead to higher resale value.
• Bathroom Remodel: Renovating bathrooms can significantly increase your home's value. Updating fixtures, adding storage, replacing old tile, and upgrading the shower or bathtub can enhance both functionality and aesthetics.
• Energy Efficiency Improvements: Installing energy-efficient features, such as new windows, doors, insulation, and HVAC systems, can reduce utility costs and increase your home's value, especially as energy-efficient homes are in high demand among buyers seeking to lower their energy bills and reduce their environmental footprint.
• Home Expansion or Addition: Adding square footage to your home through expansions or additions, such as a new bedroom, bathroom, or living space, can significantly increase its value. Additional square footage can improve functionality and accommodate growing families.
• Basement or Attic Conversion: Finishing an unfinished basement or attic can add valuable living space to your home. Converting these areas into bedrooms, recreational rooms, or home offices can significantly increase your home's usable square footage.
• Maintenance and Repairs: Addressing deferred maintenance issues and making necessary repairs can help maintain your home's value and prevent depreciation over time. Regular maintenance, such as roof repairs, HVAC servicing, and exterior painting, shouldn’t be ignored.

Consolidate Debt

High-interest debt can hinder wealth-building in several ways. Such debt can eat into your income and consume a significant portion of your monthly budget. Think of it like this: the more money you spend on interest payments, the less you have available to spend otherwise. The strain on your monthly cash flow makes it difficult to cover essential expenses, save for emergencies, or invest in wealth-building opportunities.

Using home equity to consolidate debt can free up money and improve your financial health.

• Lower Interest Rates: Credit cards, personal loans, and other forms of unsecured debt often have the highest interest rates. By consolidating high-interest debt into a single, lower-interest loan, you can reduce the overall cost of borrowing and save money on interest payments over time.
• Single Monthly Payment: Consolidating multiple debts into a single loan simplifies your monthly finances and makes it easier to manage your debt. Rather than juggling multiple payments with different due dates and interest rates, you'll have simply one convenient payment to make each month, streamlining your budgeting process and reducing the risk of missed payments.
• Extended Repayment Terms: Home equity financing solutions frequently have longer repayment terms than unsecured loans or credit card debt. By extending the repayment period, you can lower your monthly payments and improve your cash flow, making it easier to manage your debt and meet your financial obligations.

Pay Off College Tuition

Pursuing higher education isn’t cheap. But education and the development of new skills can lead to future income growth in several ways. Home equity financing can cover tuition expenses for formal education programs, such as college, university, vocational school, or trade school. They can also be used to fund advanced degrees, such as master's degrees or doctoral programs, that lead to specialized knowledge and expertise in a particular field. Generally, earning an advanced degree can enhance your professional qualifications, increase your earning potential, and position you for leadership roles or higher-paying positions in your chosen industry.

However, while investing in education can lead to future income growth and career advancement, it's essential to weigh the potential return on investment and ensure that the benefits outweigh the costs of borrowing. Most importantly, be sure to explore alternative financing options, such as scholarships, grants, employer tuition assistance programs, or personal savings, before turning to home equity financing for this use case.

Advance Your Career

If you have a business idea or entrepreneurial venture you want to pursue, tapping into your home equity can provide the initial capital needed to start your business. These funds can be used to cover startup costs, such as purchasing equipment, leasing office space, hiring employees, or funding marketing efforts. In addition, if you already own a business and are looking to expand operations, your home equity can provide the necessary funds to grow your business. Whether you're opening a new location or launching a new product line, home equity financing can support your business expansion goals.

Buy More Real Estate

You could also use your home equity to fund the downpayment on an additional property, one intentionally purchased as an investment opportunity. Investment properties can:

• provide a steady stream of passive income from the rental payments from tenants
• diversify your income streams and balance out the volatility of other investments, such as stocks or bonds
• furnish financial stability by supplementing retirement savings and otherwise compounding your wealth over the long term via additional investments

Diversify Your Investment Portfolio

We’ve all heard the old adage not to “put all your eggs in one basket.” That advice holds true for investments–it’s best to spread them out between different asset classes to decrease the risk. If you tap into your home equity, a financial advisor could help you select mutual funds, bonds, and other potential investment opportunities with which to diversify your portfolio.

Build Your Emergency Fund

Your savings are there for the future–whether in case of an emergency, or to set you up in your retirement. Retirement savings not only allow you to maintain your standard of living after you stop working, but they can also cover healthcare costs, which we are more likely to accrue later in life. Plus, if you need to perform any renovations in order to age in place, or put down a downpayment in efforts to downsize, these savings can be indispensable. Lastly, retirement should be your great next act in the grand play of life–having financial resources allows you to enjoy retirement to the fullest and pursue activities that bring fulfillment and joy.

How Unison Can Help You Build Wealth

One of the most popular ways to tap into your home equity to accomplish any of the above objectives has long been to utilize a home equity financing debt product, such as a home equity line of credit. These traditional options did enable homeowners to harvest their equity, but they were accompanied by punishingly high interest rates, and steep monthly payments that often left the borrower with no financial flexibility. Enter Unison.

Unison pioneered the Equity Sharing Home Loan, a 10-year, shared appreciation, interest-only home loan with below-market rates for second mortgages*. Homeowners are empowered to access their equity with low monthly payments, thanks to both the loan’s partially deferred interest, as well as Unison’s share in their home’s future appreciation.

If you’re interested in making your home equity work for you, but also want to maintain flexibility in your monthly spending, learn more about the Equity Sharing Home Loan today.


*Based on an internal analysis and review through July 2024 of interest rates for second-lien home equity loans.





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