You buy a house for $500k with $100k down and $400k mortgage (20% equity). 10 years later, you want to renovate the kitchen. The house is now worth $600k and you’ve paid down the mortgage to $300k, so you have $300k in equity, or 50% equity in the home. Since banks will let you borrow up to 80% loan to value of home, you can tap into 30% of your home’s value, which would be up to $180k. Instead, you only need $50k for a new kitchen so you take out a home equity loan for $50k, increasing the total loans against your house from $300k to $350k. The other thing you could do is refinance your entire mortgages and pull out some equity. Not as likely an option now with rates over 6%, but a year ago somebody with a 4.5% mortgage might have done a “cash out refi” at 3%, allowing them to get a check for $50k while increasing mortgage balance to $350k but perhaps only seeing a minimal increase in payments due to lowered interest rate.
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