I Have $700K in Home Equity and a $500K Mortgage. Here’s How to Use Equity to Reduce Your Home Loan

Core Insights - Home values have increased nearly 50% over the past six years, rising from $243,398 in December 2019 to $357,275 in December 2025, leading to a significant increase in home equity for many homeowners [1] - Home equity can be utilized for various financial needs, but it is essential to recognize that it is not free money [1] - Borrowing against home equity to pay down a mortgage may not be beneficial, as it often results in trading one type of debt for another, which could have higher interest rates [1] Understanding Home Equity - Home equity is defined as the value of a home minus any mortgage or secured debt against it [3] - Initial equity is typically represented by the down payment made on the home, and it increases as the home value rises and the mortgage balance decreases [3] - The increase in home value and mortgage payments contributes to higher home equity, which can be borrowed against through home equity loans or lines of credit [4] Borrowing Against Home Equity - Lenders generally allow borrowing up to around 80% of a home's value across all housing debt, but accessing home equity is not free [4] - Home equity financing incurs interest charges, making it a costlier option for accessing funds [5] - While it is technically possible to use home equity financing to pay off a home loan, this approach is often counterproductive and comes with associated costs [6]