how does using your home equity work?

Answer 1

When you have home equity you can go to a bank and borrow either as a loan or as a line of credit. Say you have 200K equity you might set up a HELOC of 100K at prime minus .25. You don't pay anything unless you borrow on the line. It provides overdraft protection on your checking if you set it up that way.
Then when you want to borrow money say for a new furnace you would compare your HELOC rate to what you could get from the furnace company or on a credit card and choose to use your line or not. The rate might change and it could go up 17 times in a row like before this last cut.
A straight loan will have a fixed rate so you will know what your loan cost. So if you know you want to borrow a large amount for something like remodeling you go and borrow the total you need up front and start paying interest before you have even spent the money but you have years to pay.
If you sell your home with the second mortgage you will need to pay it off at closing. Make sure you never borrow so much you can't handle a reduced value on the house and the commission and fees to sell so you are upside down and stuck in the house until you have equity again.

Answer 2

1. Borrow 100k and use it to purchase a home.
2. Have the home evaluated two years later at 114k
3. Make a second loan against the home for 14k