How Using Home Equity for Down Payment Saves You Money

Hunter Letendre
Oct 17, 2024
3 min read

Updated: Jun 12

How Using Home Equity for Down Payment Saves You Money

Can Using Home Equity for a Down Payment Really Save You Money?

If you're a current homeowner planning to buy your next home, you may be sitting on a powerful asset—your home equity. With home prices at historic highs, many are now using home equity for a down payment on their next property. This strategy can dramatically reduce your borrowing costs and help you secure a better mortgage deal.

Let’s break down exactly how tapping into your equity can give you a financial edge.

What Is Home Equity and How Can You Access It?

Home equity is the difference between your home's current market value and the balance remaining on your mortgage. Thanks to recent property appreciation, many homeowners have seen a significant increase in their available equity.

When you sell your home, this equity can be applied directly to the down payment on your next home, boosting your buying power. According to Redfin, the average U.S. down payment recently hit $67,500—up 15% year over year—reflecting how more homeowners are leveraging their equity.

What Are the Benefits of Using Home Equity for a Larger Down Payment?

How Does a Bigger Down Payment Reduce Borrowing?

The more equity you put toward your new home, the less money you need to borrow. Smaller loan amounts mean lower interest costs over the life of your mortgage. Less borrowing equals long-term savings and less financial stress.

Can You Get a Lower Mortgage Rate with More Equity?

Yes. Lenders favor larger down payments, often offering lower interest rates as a result. A bigger down payment reduces lender risk and signals financial stability. Even a slight reduction in your rate can save you thousands over time.

Will Your Monthly Payments Be Lower?

Absolutely. A larger down payment shrinks your mortgage, which in turn means smaller monthly payments. This frees up your budget for other priorities, such as travel, home improvements, or retirement savings.

Can You Avoid Private Mortgage Insurance (PMI)?

Yes—this is one of the biggest advantages. If you can make at least a 20% down payment using your home equity, you can eliminate PMI altogether. PMI typically costs between 0.5% and 1% of your loan annually, so avoiding it can save hundreds—or even thousands—each year.

Is Using Home Equity the Right Move for You?

If you're selling your current home and planning your next purchase, here are a few questions to guide your decision:

Do you have significant home equity to use?
Are you aiming for a lower monthly mortgage payment?
Do you want to avoid paying PMI?
Are you looking to lock in the best mortgage rate available?

If you answered “yes” to any of these, using home equity for a down payment may be one of the smartest financial decisions you can make.

Final Thoughts: Maximize Your Equity, Minimize Your Mortgage

Your home equity isn’t just wealth on paper—it’s a valuable resource that can help you save money when buying your next home. A larger down payment means lower borrowing costs, better loan terms, and greater financial security.

Ready to explore how much equity you have and how to use it wisely? Let’s connect and estimate your current home value so you can confidently plan your next move.

**This article is for informational purposes only and should not be considered financial advice. Always consult with a licensed mortgage or financial advisor before making decisions.