Home equity as a financial tool: How homeowners can fund renovations, consolidate debt, and make investments in 2026

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Home equity as a financial tool: How homeowners can fund renovations, consolidate debt, and make investments in 2026

Home equity is the amount of ownership of a property an individual holds. It accounts for down payments, improvements that have been made, mortgage payments, and the current market value of the property. You can calculate it with this formula:

[(Home value - mortgage balance) / home value] x 100 = % of home equity

Home equity is also illiquid, meaning it cannot be easily transferred into cash. However, it can be strategically leveraged to finance other purchases.

Many homeowners are turning to their home equity as a way to achieve goals like renovations, debt consolidation, and investment. With current data from consumer finance organizations, Splitero covers current home equity trends, what financial vehicles are available to homeowners, and how to decide whether it’s right for you.

Homeowner equity levels: Where things stand heading into 2026

According to an August 2025 report by ICE Mortgage Technology, Americans entered Q3 of 2025 with $17.6 trillion in total accessible equity, setting a record high. Total equity has risen dramatically since 2012, largely driven by the increase in overall home values. This provides a valuable opportunity for financial leverage.

Current national equity statistics in the US

ICE Mortgage Technology reported that total accessible home equity is up 4% year-over-year, yet borrowers are only tapping into a small fraction of what’s available. This suggests that the HEI market has significant room to grow.

Homeowners are using equity to consolidate debt

While home equity is often used to fund large purchases and renovations, financial institutions are finding that some homeowners are using their home equity to consolidate other debt. The Federal Reserve Bank of New York Consumer Credit Bureau found a correlation between the time at which a HELOC was opened and a negative change in debt balances.

The findings were based on anonymized Equifax data collected in the 12 quarters before and after a new HELOC opening. Debt balances experienced a near immediate reduction immediately after the opening of a HELOC, suggesting that homeowners are using their HEI lump sums for debt consolidation.

Changing market dynamics

With home values near all-time highs, even as the prices have softened from their 2022 peak, homeowners are looking to capitalize. The Mortgage Bankers Association reported that HELOC and home equity loan originations increased 7.2% year over year in 2024, signaling growing homeowner interest in accessing home equity.

Ways to access home equity: Traditional, alternative, and cash-out options

There are multiple ways for homeowners to access their home equity. Each has its own advantages, disadvantages, risks, and rewards. Most individuals are aware of traditional options like home equity loans, but alternative opportunities also exist, such as equity sharing and cash-out refinancing. Comparing the terms of each can help a homeowner understand which is best for their financial situation.

Traditional home equity financial products

Traditionally, homeowners were able to access their equity via three methods: a home equity line of credit, also called a HELOC; a home equity loan; and a cash-out refinance. HELOCs and home equity loans are typically considered second mortgages that have to be paid alongside the first mortgage, while a cash-out refinance replaces the existing primary mortgage.

As explained by the Consumer Financial Protection Bureau, HELOCs and home equity loans differ in terms of structure and repayment:

HELOCs work similarly to a credit card. A homeowner is given a line of credit secured by their home’s equity. This amount can be pulled from as needed and paid off. Interest rates are typically variable. As used credit is paid off, it replenishes and becomes available again.
Home equity loans are a one-time lump sum payment that’s based on a homeowner’s existing equity. It has a longer-term payment schedule and typically has a fixed or variable interest rate.

A cash-out refinance allows a homeowner to refinance their existing mortgage for a higher amount than what is currently owed and receive the difference in cash. Unlike HELOCs or home equity loans, this approach consolidates the original mortgage and the accessed equity into a single new loan, often with a new interest rate and loan term.

Home equity sharing: An alternative option

Home equity sharing, also known as a home equity investment (HEI) or home equity agreement, is a financial product that has been gaining popularity.

HEIs can be a powerful tool because they have no monthly payments, typically have no income requirements, and lower credit score requirements than traditional financing options, enabling homeowners with lower credit scores or non-traditional income to access their equity.

In a home equity sharing agreement, a homeowner gives a portion of their equity to a home equity investor. They pay an origination fee (typically 3%-5%) and receive a lump sum of their home equity at the time of signing subject to any applicable rescission period. At any time during the contract, homeowners can repurchase the option. They can also repurchase their investment at the end of the contract term, when they pay off their mortgage, or when they sell their home.

The repurchase amount varies depending on the methodology of the equity partner. It typically includes the lump sum amount that was initially received and the share of future home equity that was agreed upon at origination. Some HEI companies set safety thresholds that protect homeowners in cases of high appreciation.

Case studies: Three examples of home equity in action

Three of the most common reasons for using home equity are to renovate a home, debt consolidation, or invest in another property. Depending on the circumstances, a home equity investment can offer homeowners more flexibility. Here are three examples.

Homeowner one: The renovator

Say a homeowner wants to complete a $50,000 renovation, but they don’t have the cash available. With a HELOC, they would get $50,000 at an interest rate of around 6.49%, with monthly payments of $367 over 20 years. In the end, they will have paid around $88,000.

With an HEI, the homeowner receives $50,000 upfront in exchange for agreeing to share a portion of their home’s future value. They may pay an upfront fee (for example, 4% of the amount received, or $2,000), along with standard closing costs. There are no monthly payments. Instead, at the end of the contract term (i.e., when the home is sold, refinanced, or the agreement matures) the homeowner repurchases their investment of $50,000 plus the investor’s agreed-upon share of the home’s future value. This reflects the home’s actual market performance rather than a fixed interest calculation.

Homeowner two: The debt consolidator

In another scenario, a homeowner can use an HEI as a way to reduce their debt. Someone with a large, outstanding credit card bill may be suffering high-interest rates but lack the capital to pay off their debt fully.

Using home equity, the homeowner can get access to a large lump sum that can be used to directly pay off this debt.

Homeowner three: The investor

Home equity sharing can also be used to purchase rental properties. A homeowner may be interested in purchasing another property, but they do not have the 25% required for a commercial down payment. A HEI is a possible option.

If this individual’s home was currently worth $400,000, they could utilize an HEI to potentially get access to $100,000 (25% of their home’s value). This would then provide them with enough down payment for a $400,000 rental property. Once the rental property closes and they find a tenant, they could begin collecting consistent monthly cash flow.

Financial risks vs. reward: Is leveraging home equity always recommended?

It should go without saying that all investments can carry risks, and leveraging home equity is no different, no matter which method you choose. There are some considerations that you should make to help you determine if it's right for you and your family.

Real estate market risk: One of the biggest factors to consider is the current and future real estate market. If you live in an area that is expected to undergo significant growth in the next 10-30 years, leveraging your equity now likely will still leave you with more equity to use later. In regions with lower expected appreciation, homeowners may want to be more cautious about how they leverage existing equity, since slower home price growth can limit future value gains.
Monthly payments: A homeowner’s personal financial capacity also plays a factor in their equity financing decision. Home equity loans have required monthly payments. If income cannot support this, a home equity investment could be a good alternative option to traditional financing.
Credit score: HELs and HELOCs often have high credit score and income requirements. Homeowners should consider their eligibility for these products and consider HEIs if they have low scores or non-traditional income.
Time horizon: Traditional home equity access products, such as HELOCs or home equity loans, are best for shorter time horizons. If you are unable to afford larger payments in a short timeline, a home equity investment may be a more accessible option.

Tax and regulatory considerations

There are several tax considerations associated with home equity leveraging. One of the most important things to understand is that interest paid on home equity loans and lines of credit is generally tax-deductible.

From 2017 to 2025, the IRS allows a homeowner to deduct the interest from a HELOC or home equity loan so long as they use it to substantially improve the property they took it out on.

Choosing your equity strategy: Main determining factors

Which equity strategy is best will vary for each individual homeowner and will be affected by what the individual intends to use the funds for. Real estate market risk, monthly payments, credit scores, and time horizons are some of the most important considerations to make.

To help you better understand these factors, here is a breakdown.

HELOC

Monthly payments: Variable, required
Credit score required: 620–680
Closing costs: 0%-2%
Time horizon: 3-10 years
Impact on debt-to-income ratio: Affects DTI
Tax deductibility: Interest may be deductible
Flexibility: High (redraw)

Home equity loan

Monthly payments: Fixed, required
Credit score required: 620-680
Closing costs: 2%-6%
Time horizon: 5-15 years
Impact on debt-to-income ratio: Affects DTI
Tax deductibility: Interest may be deductible
Flexibility: Low (lump sum)

Equity sharing

Monthly payments: None
Credit score required: 500-680
Closing costs: 3.0%-4.99%
Time horizon: 10-30 years
Impact on debt-to-income ratio: Does not affect DTI
Tax deductibility: Not deductible
Flexibility: Moderate (fixed-term)

Cash-out refinance

Monthly payments: Fixed, required
Credit score required: 620+
Closing costs: 3%-6%
Time horizon: Varies with market
Impact on debt-to-income ratio: Affects DTI
Tax deductibility: Interest may be deductible
Flexibility: None (committed)

Financing goals with strategic home equity in 2026

Home equity can be a powerful tool that helps a homeowner achieve their financial goals. Renovations, debt consolidation, and investment properties all require large sums of money, and it can be tough to afford these when cash is tied up in a tangible asset like a home.

Home equity loans, lines of credit, cash-out refinancing, and equity sharing are all viable ways to leverage the ownership you have in your home. While each has a best use case, they can offer many financial benefits when used properly.

This story was produced by Splitero and reviewed and distributed by Stacker.