Owning a home is one of the best ways to build wealth. Your home increases in value over the years, and sometimes the value increases right away. Most people have more wealth in their homes than in their retirement plans or in stocks and bonds.

How does owning a home build wealth? Your home increases in value over time and your debt goes down as you pay off your mortgage. The difference between the amount you owe on your home and the amount your home is worth is called equity.

You can use home equity to build wealth in 3 major ways:

1. Borrow against your home (equity) for things like education, home repairs and emergencies.

A home equity loan or home equity line of credit can cover these types of expenses. With a home equity loan (usually a second mortgage) you get a lump sum of money—say $1,000—that you pay back over a period of time at a fixed interest rate. With a home equity line of credit, you can borrow all or none of an approved amount, say $1,000, and there’s no limit to how much you can spend and there’s no set period of time you use to pay it back. It works more like a credit card and the interest rate can change. You only have to pay back what you spend.

2. Refinance your mortgage and take out the extra money.

When you refinance your home, you replace your current mortgage with a completely new mortgage. Your new mortgage is the amount of the old mortgage plus the amount you want to borrow. You get the difference in cash.

3. Sell your house for a profit.

You don’t have to finish paying off your mortgage on your home to sell it. When you put your house on the market, you usually ask for more than you paid for it. When you sell your house, your mortgage is paid off and you keep the difference. This is selling at a profit. You can save that money, invest it, use it for education costs, or use it as a down payment to buy another home. See the Home Ownership section for more information.