Your home isn’t just where you live—it’s a financial asset that can grow with you. Each mortgage payment you make doesn’t just reduce debt—it builds ownership. That ownership, known as home equity, is yours to use as you see fit.
At Newrez, we think it’s crucial for homeowners to understand how their equity can work for them. In this guide, we’ll break down what home equity is, how it grows and the ways homeowners can responsibly access it. Whether you're looking to renovate, consolidate debt or simply understand your financial position better, it’s a good idea for homeowners to understand how their equity works and what they might be able to do with it.
Understanding Home Equity
Home equity is the portion of your property that you truly own—its current market value minus any outstanding liens, such as a mortgage or second loan. Over time, equity grows as you pay down your mortgage principal, and as your home potentially appreciates in value. Home equity isn’t just a number—it’s a valuable part of your net worth and can be used to access financing at potentially lower interest rates than other loan options.
How Home Equity Works
When you finance a home with a mortgage, the lender has a financial interest until the loan is paid in full. Each mortgage payment typically reduces the principal balance, gradually increasing your ownership share. Equity may also rise when property values in your area increase, or through value-added renovations.
However, equity can decline if home values fall or if you borrow against it, such as through a second mortgage.
How to Calculate Home Equity
Calculating home equity requires two figures: your property’s current market value and your outstanding loan balance.
Formula:
Home Equity = Current Market Value – Outstanding Loan Balance
Example:
- Current market value: $400,000
- Outstanding mortgage or additional liens: $250,000
- Home equity: $150,000
This calculation reflects how much of the property you own outright.
Ways to Access Home Equity
Newrez carries several products that allow you to pull cash from your equity so you can use it how you like. Each of the options below operates a little differently, so you can find one that matches your lifestyle. See a more detailed comparison here.
Cash-Out Refinance †
With a cash-out refinance, you replace your current mortgage with a larger one so you can pull out a lump sum of cash. While this may potentially change your mortgage term and rate, this option can be ideal for people who would prefer to only keep track of one payment. Learn more here.
Newrez Home Equity Loan (Second Mortgage) ††
The Newrez Home Equity Loan offers a way for homeowners to unlock the value in their property without adjusting the terms of their existing mortgage. This second mortgage provides a lump sum of cash at a fixed interest rate. Loan eligibility is based on factors like available equity, credit profile and debt-to-income ratio. Learn more here.
Home Equity Line of Credit (HELOC)^
The Newrez HELOC gives homeowners more flexible access to the equity they’ve built in their property, rather than paying out a single lump sum. This revolving credit line allows you to borrow as needed—up to a set limit—while keeping your repayment schedule separate from your primary mortgage. With a HELOC, you can draw funds during an initial period and repay over time, making it a useful option for ongoing or unpredictable expenses. Learn more here.
Use Your Equity How You Like
Your equity is yours to use in any way you see fit. If you’re interested in tapping into your equity to reach your financial goals, reach out to a Newrez loan expert today and we’ll be happy to help.
