What does it mean "taking out home equity"?

Equity in anything (real estate, investments, businesses, etc.) is defined as the difference between what the investment is worth and what you owe on it.

If you have enough equity you can refinance the house for a higher amount and take out the difference in cash.

When you buy a home, you take out a loan to pay for the house. Until recently, when you bought a house for certain amount, the house value would remain the same or increase, so as you paid the loan, the amount that you owed was less than the value of the house. The difference in what you owe and what the house is worth is called equity. Unfortunately now, the houses are decreasing in value faster than what the payments are, and that is called negative equity or being upside down. When a person has equity in a house, they can borrow that amount and use the house as collateral. The advantages of doing this, is they get a loan at very low interest rates, and they can claim the interest paid on their income taxes. The disadvantage is, if the house decreases in value, it will be harder to sell the house and not be in debt.

Let's say you owe 100k on a house, but it is valued at 150k. That means you have 50k "equity". Most banks now will not lend 100% or 110% like they were a few years ago, but, one would be able to tap into or borrow money against their house. It is called taking out a second mortgage or refinancing and cashing out.

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