Home equity — building it, tapping it, protecting it
Equity grows two ways: paying down principal, and the home appreciating. You can tap it through cash-out refinance (long-term, fixed-rate), a HELOC (short-term, variable), or a home equity loan (fixed, lump-sum). All three re-leverage your house — use them sparingly.
For most middle-class households, home equity is the largest single source of wealth. A typical 30-year mortgage on a $400K home with modest appreciation turns into $700K of equity by year 30 — that's the canonical wealth pathway.
Tapping equity converts an unspendable asset into spendable cash, but it re-leverages the house. In a downturn, the leverage can flip you to negative equity if values fall enough. Three rules: use only for purposes generating value above the cost of capital, never for consumption, and never to the point where a 20–30% decline would wipe you out.
PMI (private mortgage insurance) drops off when LTV crosses 80% — sometimes by request, sometimes only by refinancing. If you're close to the threshold, ask your servicer before doing anything else.