Home equity has hit a record high. Here’s how to figure out exactly how much equity you have in your home (and what to do with it)

Housing prices are rising fast and that means one’s home equity is likely to have gone up as well. Indeed, research firm Black Knight found that tappable home equity hit a record high in the third quarter of last year. And with low rates on HELOCs and home equity loans right now (some HELOC rates now start at around 3% (see the best rates you qualify for here), many homeowners are wondering what they should do, if anything, with that equity.

What is home equity?

In simple terms, home equity is the difference between what you owe on your mortgage and what your home is worth now. But Greg McBride, chief financial analyst at Bankrate, cautions homeowners that the amount of equity they have is not the same as money in the bank. “If you sell, your proceeds will be less than the amount of equity because of commission and closing costs,” he say.

How do I figure out how much equity is in my home?

The rough math is easy: simply subtract the amount of money you owe on your mortgage from the current value of your home.  “If you’re unsure of your home’s value, you can estimate it by checking the prices of similar homes that have recently sold in your area. Or, if you want a more precise estimate, you can order a home appraisal, says Jacob Channel, senior economic analyst at LendingTree. 

What can I do with my home equity?

You don’t need to do anything except bask in the fact that, were you to sell your home, you’d probably get more cash now that you did a year ago. But you can also tap into that home equity: “You can consider taking out a home equity loan, getting a home equity line of credit (HELOC) or applying for a cash-out refinance,” says Channel. These options provide a homeowner with money they can use for a variety of purposes, but remember, if you don’t pay them off, you could lose your house. And note that not all uses of this money are considered equal, pros say. Among the better uses are needed home renovations or improvements, to repay high-interest debt, or to pay for an emergency you couldn’t otherwise afford. You can read our guide on choosing between a HELOC and home equity loan here.

You also might want to consider refinancing. If you haven’t refinanced your mortgage in the past 18 months, chances are today’s rates are a good bit lower than what you’re currently paying, making a cash-out mortgage refinancing an option. “Otherwise a home equity loan or line of credit offers a rate in the 4% to 5% neighborhood. Some home equity lines offer an introductory rate that could be below 3% for the first several months,” says McBride. 

For a take on your personal situation and how pulling equity out of your home can best benefit you, it can be wise to seek an expert’s input. “If you’re curious about the different ways you can tap into your home equity, contact your lender and ask them what your options are based on the amount of equity you have and other factors like your income and credit score,” says Channel.