Last updated: December 27, 2023

Mortgage Products

What can a home equity loan be used for?

 Parents that found out a home equity loan can be used for home improvements and are celebrating with their kids.

There are many ways to use a home equity loan to meet your financial needs. However, because a home equity loan is secured by the house you live in, it is very important that you carefully consider how the loan may affect your personal security and financial future.

The best uses for home equity

The two most common ways to use home equity are to consolidate debt and make home improvements. Let’s take a closer look at each of these options.

Home equity loan for debt consolidation

If you have several credit cards or loans with high balances and high interest rates, using your home equity to consolidate your debt might save you money, and reduce financial stress.

When you consolidate debt using a home equity loan, you combine multiple debt payments into one monthly payment. In some cases, having one monthly outstanding debt payment, versus multiple outstanding debt payments.

You may also see an increase in your personal cashflow since you could reduce your interest rate when consolidating your debt with a home equity loan. All the money that you save on monthly interest can now be used to build a saving account, invest or pay down your mortgages.

One example where this is not a good loan use is if you know that you will take on more high-interest debt in the future. Know your limits, set a budget, and stick to it. Then, you’ll make the most of consolidating your debt by using your home equity.

Home equity loan for home improvement

When it comes to home improvements and renovations, home equity loans are best used for higher dollar projects. Whether you want to add square footage to your home or modernize interior and exterior features, using your home equity can be a good source of funds for your home improvement project. Additionally, home improvements may also add value to your home.

Although debt consolidation and home improvement are the two most popular ways to use home equity, there are also several other ways to use home equity.

Using a home equity loan to pay for school or college tuition

Education is expensive, and financial aid options may be limited. In these cases, home equity can make it possible for you to obtain the financing you need to provide yourself or your children with a quality education.

Financing life events and major purchases

Maybe you are getting ready for a big wedding, a new car, or special vacation. Your home equity can be an option for financing these types of purchases.

Emergency expenses

When the unexpected happens, you can use your home equity to pay medical expenses. A home equity loan may also be used to support your family while you seek employment after a job loss.

Looking to tap into your home equity? Discover® Home Loans offers low fixed rates on home equity loans with terms of 10, 15, 20, or 30 years and $0 costs due at closing.  

The worst ways to use home equity

As you can see, there are a lot of good ways to use home equity, but there are also a few uses of home equity that are less than ideal.

  • Avoid using home equity for basic expenses. If you want to use home equity to pay for day-to-day living expenses, you are probably better off creating a budget you can stick to without having to dip into your home equity to continue your standard of living.
  • Avoid treating your home equity like extra cash. Instead, seek to use your home equity to make large purchases that will yield a positive return. You may also be tempted to use the cash from a home equity loan to play the market or tinker around with investments. Leveraging home equity capital for investment purposes is a complex matter, may have legal implications, and warrants contacting a financial advisor or attorney to discuss further.

Closing thoughts: Home equity loan uses

A home equity loan offers homeowners a versatile and powerful financial tool that may be used for a wide range of purposes. Whether it’s for home improvements, debt consolidation, financing an education, or covering emergency expenses, the flexibility of a home equity loan allows homeowners to tap into the equity they have built in their property to meet their unique financial needs.

By leveraging the value of your home, you may be able to access considerable funds at potentially lower interest rates compared to other loan options. However, it is important to approach this form of borrowing with careful consideration to ensure that the loan’s purpose aligns with your long-term financial goals. Ultimately, a home equity loan may provide you with a valuable solution for achieving a brighter financial future.

To learn if a home equity loan is the right choice for you, talk with a Discover Personal Banker at 1-855-361-3435, or apply online in minutes.

Find your low,
fixed rate

Use our Monthly Payment Calculator to find a rate and payment that fit your budget.


Start your application online or give us a call.

  • Weekdays 8am–Midnight ET
  • Weekends 10am–6pm ET