I Have $700K in Home Equity, but a $500K Mortgage. Can I Use the Equity to Pay Down My Home Loan?

The nearly 50% rise in home values over the past six years—from $243,398 in November 2019 to $359,241 in November 2025—has helped many homeowners enjoy a surge in home equity. This additional value could potentially help you pay down debt or pay for repairs or renovations. However, it’s important to understand that home equity isn’t free money.

For one Reddit user, their equity is larger than their mortgage:

“This might be a silly question as I’m still wrapping my head around how equity works. Can you use the equity on your home to pay off or pay down your mortgage? Our mortgage is around $500K and we have about $700K equity in our home, is it possible to take $200[K] out of the equity to decrease our mortgage size?” 

While it’s technically possible to borrow against your home equity to pay down your mortgage, that typically doesn’t accomplish anything. Instead, you’re trading mortgage debt for home equity debt, which often has higher interest rates. Even if a new home equity loan has a lower rate than your current mortgage, you might be better off refinancing your first mortgage instead.

To determine how to best use your home equity, let’s take a step back and understand how home equity works.

How Home Equity Works

Home equity is simply your home’s value minus your mortgage or any other debt that’s secured against your home. 

Initially, your equity is typically your down payment. For example, if you bought your home for $500,000, put down $100,000, and took out a $400,000 mortgage, you’d start with $100,000 in equity. But if next year your home’s value jumped to $600,000 and you paid your mortgage balance down to $370,000, then you’d have $230,000 in equity.

Because more home equity means you’d pocket more if/when selling your home, lenders are often willing to let you borrow against that amount, such as through a home equity loan or a home equity line of credit (HELOC).

Limits vary, but you’re often able to borrow up to around 80% of your home’s value across all housing debt.

But no matter how much home equity you have, no lender would let you access that money for free, as if you were withdrawing funds from a savings account to pay off your mortgage. Lenders generally charge interest on home equity financing.

Even in non-traditional home equity financing arrangements, there’s a cost. For example, a home equity sharing agreement, also called a home equity investment, could let you access cash from your home equity now, without requiring any repayments for decades or until you sell your home. However, the cost comes from having to share your home’s value or future price appreciation, which typically ends up costing you more than what you initially received in home equity financing.

What You Can Use Your Home Equity For

Lenders may have their own rules, but typically you can use home equity financing for most legal purposes, whether that’s for personal or business use.

Some common ways people use their home equity include:

• Consolidating high-interest debt, like credit card debt, into one lower rate
• Paying for home renovations or repairs, potentially at a lower cost than using credit cards and offering more flexibility than short-term financing like construction loans
• Paying for education when student loans are unavailable or unaffordable
• Funding a new business venture if private investment is unavailable

What You Can’t Use Your Home Equity For

Home equity financing is usually very flexible, but that doesn’t mean you always can or should take on this borrowing risk.

For example, while it’s possible to use your home equity to buy a second property, that can be harder to qualify for and increase risk, since you’re adding even more debt. 

You also can’t use your home equity like traditional cash to wipe out housing debt, as the Redditor insinuated in their question. Instead, borrowing against your home equity to pay off other debt like a mortgage simply shifts the debt from one source to another. That might be advantageous in select situations, but you have to carefully do the math to see what your best option is.

Also, while home equity funds can be used for personal expenses, there’s a big risk to using this money for anything that doesn’t have a clear return on investment. For example, renovations or repairs might support a higher home value when you eventually sell, but using home equity financing to take a vacation is risky. You need to repay what you borrowed, so if you spend the money for fun, it can be hard to pay the financing back.

The Bottom Line

If your home equity has grown substantially in recent years, it could help you tackle financial issues like paying off credit card debt. However, accessing your home equity still means borrowing money, so you need to be prepared to pay the money back, typically at a higher amount than what you took out. As such, borrowing against your home equity to pay off your mortgage is often fruitless.