Home Equity

How to Leverage & Unlock Trapped Equity in Your Home

By Meela Imperato
How to Leverage & Unlock Trapped Equity

When you look at your finances, does your house file under the debt or asset column? For the majority of homeowners, the answer is both

“What does home equity mean?” Home equity refers to how much of your property you own at a given time: current market value minus what you owe on your mortgage. But oftentimes, equity becomes locked up and unused until a seller hands over the keys to their property and closes the sale to an investor. 

That said, there are multiple ways to unlock and use your home equity without selling your home or investment property.

What Is Trapped Equity in Real Estate?

Over time, your equity grows—often more quickly than you realize. You’ll gain equity through: 

  • Your initial down payment 
  • Paying down principal via monthly mortgage payments 
  • Appreciation as home or investment property market value increases based on real estate market changes
  • Home improvements and updates

This asset becomes trapped equity when it’s untapped, ignored, or forgotten in situations where it could provide cash flow, pay off debts, or be put to better use. It can also refer to homeowners with low credit scores who can’t access reasonable loan terms to borrow against equity.1

Benefits of Leveraging Trapped Equity

Leveraging trapped equity can give you access to cash you can use for investing and other expenditures. But it’s important to be strategic about the way you spend the equity when doing so. 

Equity is an asset that grows when left alone, so leveraging it wisely means either making more profitable use of it or having a good reason to borrow from future dividends. Savvy planners might benefit from “untrapping” their equity by using it to: 

  • Start a new business
  • Invest at a higher return than real estate 
  • Fund future earnings through education
  • Save overall by paying off high-interest credit card debt and personal loans
  • Make home improvements that result in growing your property value / regrowing equity

Another common use of equity is to access cash flow to pay for medical needs and family emergencies. 

How to Unlock Trapped Equity in Your Home

Unlocking equity is usually done through secured debt: you borrow money and get a lower interest rate because the lender is given a lien against your property if you default on repayment. Explore these different types of real estate transactions that can help you unlock trapped equity.

Home Equity Loans

A home equity loan, or a “second mortgage,” is the most basic way to borrow against equity. You can shop around for the lowest rate based on your credit score and DTI. Interest rates vary across lenders but will typically be a bit higher than a conventional/first mortgage but significantly lower than credit cards and unsecured loans. 


A home equity line of credit, or HELOC, is similar to a home equity loan except for the loan amount. Rather than a set amount, you establish a line of credit for a variable amount and have a window during which you can borrow up to that total (or some of it, or none at all). When the window closes, you start repaying the amount you actually borrowed. 

This flexibility means that HELOCs have slightly higher interest rates than standard home equity loans (but, again, lower than unsecured debt). 

Cash-Out Refinancing

With a cash-out refi, or remortgaging to release equity, you trade in your current mortgage for a larger loan that covers what you still owe on your home, plus an additional cash-back amount borrowed against your current equity. 

A cash-out refi comes with a higher interest rate, buyer closing costs, and private mortgage insurance payments if your equity falls below 20%. 

Sale-Leaseback Agreements

If you want to stay in your home, pay off your mortgage, cash out your equity, and avoid any new debt, a sale-leaseback might be worth investigating, for there are many benefits of a sale-leaseback transaction. With a residential sale-leaseback, you sell your property to an investor and service provider who: 

  • Guarantees your legal right to remain in your home as long as you want
  • Agrees with you on a rental rate and locks it in for up to five years
  • Provides a contractual limit on future rent increases
  • Takes over property tax, homeowner’s insurance, and covered repairs and maintenance

Considerations When Unlocking Your Trapped Equity

It’s valuable, available, and can support your family and financial goals, but always use caution and care with equity decisions. Keep in mind: 

  • Securing debt with equity includes the possibility of property loss through foreclosure
  • Equity grows in value over time via appreciation—use it at the right time 
  • It should never be used to fund ongoing expenses or entertainment
  • Consider all options and what type of equity conversion best fits your needs
  • Comparison-shop across multiple lenders to find the best rates and terms

Key Takeaways

Used with care, home equity can help you pursue important goals and build wealth. While unlocking equity is typically connected to taking on property-secured debt, it can also be done with no debt through a residential sale-leaseback. Consider the pros and cons of ways to unlock your equity and comparison shop to find the best outcome for you. 


  1. Forbes. The Trapped Equity Crisis And How It Needs To Be Addressed. https://www.forbes.com/sites/forbesbusinesscouncil/2022/09/23/the-trapped-equity-crisis-and-how-it-needs-to-be-addressed
Home Equity
Written by Meela Imperato
Senior Director of Brand and Content, Real Estate & Finance Journalist

This article is published for educational and informational purposes only. This article is not offered as advice and should not be relied on as such. This content is based on research and/or other relevant articles and contains trusted sources, but does not express the concerns of EasyKnock. Our goal at EasyKnock is to provide readers with up-to-date and objective resources on real estate and mortgage-related topics. Our content is written by experienced contributors in the finance and real-estate space and all articles undergo an in-depth review process. EasyKnock is not a debt collector, a collection agency, nor a credit counseling service company.