7 Ways to Use a HELOC to Build Wealth

The average homeowner with a mortgage was sitting on $212,000 in home equity in mid-2025, according to ICE Mortgage Monitor. Obviously, the equity number varies for each individual and depends on factors such as the original down payment, local property values, and the amount of time in the home. But if you have more than 20% equity in your home, using a home equity line of credit (HELOC) to build wealth is a strategy to consider. Let’s explore the basics of how to use home equity to build wealth.

Ways to Build Wealth With a HELOC

A home equity line of credit lets you borrow funds as needed (up to a prearranged limit) through a credit draw. This is different from a home equity loan, in which you would borrow a one-time sum of cash. Drawing on your home equity for certain expenses could help grow your wealth over time, if it financially makes sense. Here are some options to consider.

1. Home Improvements

A HELOC works well for larger home improvement projects and renovations because you can draw funds to pay for materials and contractors as needed. You accrue interest only on the outstanding balance, so it could be cheaper to opt for a HELOC vs. a home equity loan. And if you itemize your taxes, you could deduct HELOC interest payments.

Plus, a renovation project could build wealth by increasing the value of your home. Home improvement experts estimate that a kitchen refresh could deliver a 377% return on investment and refinishing hardwood floors could have a 348% ROI.

2. Debt Consolidation

Paying off debt with a lower interest rate could save you a lot of money over the long run. Let’s look at an example:

Say you have a $10,000 credit card balance with a 22.00% APR. In order to pay off that card in five years, you’d pay $276.19 per month and pay $6,571.35 in interest.

If you qualify for a HELOC with an 8.00% APR, on the other hand, you could make interest-only payments for one year, then spread out the principal and remaining interest over four years, for a total of five years. During the interest-only period, your payment would be $66.67, followed by $244.13 for the remaining four years. On top of that, you’d only pay a total of $2,518.19 in interest for the entire five years.

That’s a potential savings of $4,053.16 in interest payments by consolidating to a lower rate! And here again, HELOC interest is deductible in 2026 for those who itemize. A tax advisor can keep you up to date on deductibility in future years.

3. Real Estate Investments

Using a HELOC to buy investment property can help you start climbing the real estate ladder. Homeowners could use the funds to make a down payment, cover closing costs, and/or make some upgrades before renting out the property.

You’ll still need to qualify for the new property’s monthly mortgage loan payments, particularly if there isn’t a current rental income history for the lender to review. Assuming you’re eligible for the loan, the goal is to use the rental income to pay off the HELOC and make a profit. On top of that, the property itself could increase in value over time, building your overall wealth.

That all sounds simple, but using a HELOC to invest in real estate is something you should only do if you have studied the ins and outs of this business model and factored property management expenses, repair costs, and vacancy rates into your profit and loss calculations.

4. Education and Skills Development

Investing your home equity in your education or skills development could increase your earning power and, consequently, your wealth. Research shows that people with advanced degrees tend to earn more than those without them.

For instance, a study published in Demography revealed that women with bachelor’s degrees earn $630,000 more in a lifetime than those with a high school degree. For men, the increase in lifetime earnings is $900,000. The numbers are even more dramatic with graduate degrees. Women’s lifetime earnings are $1.1 million higher than their high school graduate counterparts, whereas men earn $1.5 million more. Clearly, investing in your professional skills can translate into greater wealth.

5. Start or Expand a Business

The majority of small business owners invest their personal funds in the growth of their companies. Research also shows that upfront funding correlates with greater revenue. So while there’s no way to know that home equity financing you use for your business will guarantee success, it could improve your odds to scale more quickly. It’s important to remember, though, that a HELOC uses your home as collateral. If you use a HELOC to finance a business, it’s a good idea to have a backup plan for how you’ll cover your payments if the business doesn’t get off the ground.

6. Investment Portfolio Growth

Growing a diversified investment portfolio is another option for using a HELOC to build wealth. Obviously, there is risk involved when using a HELOC to invest in the stock market. Focusing on long-term investments could help reduce the risk of short-term market volatility. Remember, though, that for investments made with money from a HELOC to truly pay off, you would have to earn more on the investment than you pay in interest for the HELOC.

7. Emergency Fund or Cash Reserve

Most financial experts recommend having three to six month’s worth of savings on hand in cash in case you lose a job or the ability to earn an income. However, the economic volatility that came during the pandemic has people rethinking that number and even recommending up to a year of expenses in savings. Using a type of home equity loan like a HELOC could give you the peace of mind of having a financial cushion to fall back on, while allowing you to carefully invest that six months of savings instead of keeping it in cash.

Turn your home equity into cash with a HELOC brokered by SoFi.

Access up to 90% or $500k of your home’s equity to finance almost anything.

What to Consider Before Getting a HELOC

There are several factors to consider before you decide on a HELOC instead of some other type of financing, such as a cash-out refinance or unsecured personal line of credit.

•   Your home is used as collateral: As we’ve said already, if you default on your HELOC payments, you could lose your house.

•   You must maintain 10% to 20% equity in your home: You can’t tap into your entire equity amount; lenders require you to keep some in reserve, which means you may not be able to borrow as much as you originally thought.

•   HELOCs have two stages: The first is the draw period, in which you only have to make interest payments. After the draw period, you’ll make payments on both principal and interest. The draw period usually lasts five to 10 years. So it’s critical to be prepared for the bump up in monthly payments when it happens.

Variable Interest Rates and Payment Changes

One of the most important things to understand about a HELOC is that this method of borrowing comes with a variable interest rate. Your rate won’t stay the same throughout the life of the HELOC, and so your monthly payment amount could increase if rates rise. That could mean a bigger balance and bigger payments down the road. Of course, variable rates can also drop — which would be good news. But it’s important to be prepared for the worst, even as you’re hoping for the best where interest rates are concerned.

Impact on Home Equity and Long-Term Value

Another key thing to understand about a HELOC is how it will affect your home equity. A HELOC is technically a second mortgage (assuming you are still paying off your first home loan). This means that as you draw on a HELOC, your home equity could actually decline — until you have repaid what you borrowed. If you’re using a HELOC to make improvements in your home, it’s possible your home value will increase and your equity percentage will hold steady. But using a HELOC for other purposes means your equity level will take a hit, even though, long term, you could be growing your net worth.

How a HELOC Works to Build Wealth Over Time

Many HELOC borrowers feel it’s worth it to take a temporary hit on their home equity level because they are optimistic about building wealth using home equity. To use a HELOC to build wealth, you will first need to qualify for this type of financing. To get a HELOC, you’ll need a credit score of at least 640, though some lenders will require a score of 680 or better. You will also need to have at least 15% (ideally 20%) equity in your home. To compute your equity, subtract what you owe on your mortgage from the home’s market value, then divide the answer by the market value for an equity percentage. In case you are wondering: Yes, you can get a HELOC if you have an FHA loan.

Leveraging Equity Strategically

Being smart about leveraging equity means watching the variable interest rate on this type of financing to make sure that whatever you’re spending the funds on is on track to have a higher rate of return than the interest rate you’re paying to borrow the money. So for example, using a HELOC with a 7.00% interest rate to purchase a 6-month CD that pays 4.00% isn’t the smartest way to leverage your equity. Investing in a postgraduate degree that has the potential to significantly increase your income for the remainder of your career would likely have a better payoff. Weighing costs versus benefits (including the interest you’ll pay on the HELOC) is important no matter how you choose to use the funds.

The Importance of Repayment Planning

The other key aspect of using a HELOC to build wealth is preparing for the time when you exit the draw phase of the HELOC and begin to make monthly principal-plus-interest payments to pay down what you have borrowed. If you’re using a HELOC to buy investment property, for example, you’ll want to make sure that you have a robust rent income stream teed up when the repayment phase comes and that you have made any major repairs to the property.

Your HELOC agreement will specify how often the interest rate can change on the HELOC and by how much. So part of preparing for repayment is computing what payments would be at various interest rates using a HELOC repayment calculator.

Pros and Cons of Taking Equity Out of Your Home

It’s certainly possible to build wealth using a HELOC, but there are advantages and disadvantages to think about.

The Takeaway

Tapping into your home equity using a HELOC is one way to potentially build wealth, especially because rates tend to be low when compared to other forms of borrowing. It’s critical to weigh the pros and cons, since defaulting on payments could result in losing your house. But if you have the financial confidence to move forward, there are several ways that your home equity could help you build wealth.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

Unlock your home’s value with a home equity line of credit from SoFi, brokered through Spring EQ.

FAQ

Is it smart to use a HELOC for investment property?

Using a HELOC for an investment property could help you fund the transaction sooner than if you used other types of financing. You may be able to make a bigger down payment or even make an all-cash offer. Just be sure that you feel confident in your real estate market research and your ability to make payments even if a worst-case scenario occurs.

What should you not use a HELOC for?

A HELOC should not be used for depreciating assets, especially when your goal is to build wealth. Things like vacations and car purchases aren’t usually recommended since they don’t hold their financial value.

What are the pitfalls of a HELOC?

The biggest pitfall is that your home is used as collateral to secure a HELOC and can go into foreclosure if you miss payments. On top of that, variable interest rates result in the potential for larger-than-expected payments if rates increase over time.

What credit score do you need for a HELOC?

In order to qualify for a HELOC, you’ll likely need a credit score of at least 640. In fact, some lenders like to see a score of 680 or better. And for the best interest rates, you would be wise to try to push your credit score to 700 or better before applying for a HELOC.

Can using a HELOC improve your net worth?

Used strategically, a home equity line of credit can help you grow your net worth in one or more ways. If you use funds from a HELOC to make improvements that increase the value of your home, then your net worth will increase too (after you have repaid what you borrowed). Some borrowers use a HELOC to fund investments in their education that lead to income gains. Investments in a business or even in the stock market are other, riskier ways to use HELOC funds that have the potential to increase net worth.

Photo credit: iStock/nortonrsx

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