Many or all companies we feature compensate us. Compensation and editorial research influence how products appear on a page. Home Equity Alternatives to Home Equity Loans or HELOCs Updated Apr 24, 2024 8-min read Expert Approved Expert Approved This article has been reviewed by a Certified Financial Planner™ for accuracy. Written by Megan Hanna Written by Megan Hanna Expertise: Personal loans, home loans, credit cards, banking, business loans Dr. Megan Hanna is a finance writer with more than 20 years of experience in finance, accounting, and banking. She spent 13 years in commercial banking in roles of increasing responsibility related to lending. She also teaches college classes about finance and accounting. Learn more about Megan Hanna Reviewed by Eric Kirste, CFP® Reviewed by Eric Kirste, CFP® Expertise: Debt management, tax planning, college planning, retirement planning, insurance planning, estate planning, investment planning, budgeting, comprehensive financial planning Eric Kirste CFP®, CIMA®, AIF®, is a founding principal wealth manager for Savvy Wealth. Eric brings 22 years of wealth management experience working with clients, families, and their businesses, and serving in different leadership capacities. Learn more about Eric Kirste, CFP® HELOCs and home equity loans are appealing ways to take equity out of your home. A HELOC offers flexible borrowing and repayment, while a home equity loan provides a single sum with fixed repayment terms. However, not everyone wants to use your home as collateral, risking foreclosure if you can’t repay. Here, we’ll discuss some home equity loan and HELOC alternatives that offer tailored solutions without traditional home equity financing constraints. Table of Contents Skip to Section Alternative ways to get equity out of your homeBest home equity loan alternatives Best HELOC alternativesWhich alternative is best for you? Alternative ways to get equity out of your home Taking equity out of your home can be a strategic move for managing finances, consolidating debt, or funding significant expenses. Standard home equity loans and home equity lines of credit (HELOC) are popular options, but they’re not the only ones. By considering these alternatives to home equity loans and HELOCs, homeowners can tailor their financial strategies to suit their needs better, whether they’re looking to reduce interest rates, access immediate cash, or find flexible lending options without using their home as collateral. Ask the expert Eric Kirste CFP® There are a few drawbacks to HELOCs and home equity loans that could cause you to consider alternatives: If your home price drops when you have a HELOC or home equity loan, you could end up owing more than your house is worth. If the home is your largest asset, tying up your equity with a HELOC might limit additional opportunities to borrow and the ability to leverage equity in the future for an emergency. Your home is also the collateral, meaning if you default on the loan/line of credit, the lender can take possession of the home through foreclosure. Some alternative ways to get equity out of your home include the following: AlternativeBest forCash-out refinanceLower interest rates and longer repayment termsBridge loanPlanning to purchase a new property before selling the current oneHome equity investmentSharing future home appreciation in exchange for upfront cashHome equity conversion mortgage (reverse mortgage)Seniors with significant home equity who need cash or an income stream401(k) loanBorrowers with retirement savings who want funding that doesn’t affect their credit scorePersonal loanQuick funding without using your home as collateralCredit cardSmall, short-term financing and a quick repaymentPersonal line of creditFlexible access to recurring funding with no collateral requirement The best home equity loan alternatives Alternatives like cash-out refinance and bridge loans offer homeowners flexible access to home equity. These options suit those looking to lower payments or bridge property transitions. Additional options include home equity investments, reverse mortgages, 401(k) loans, and personal loans. Each option provides unique benefits for accessing the cash needed to help you achieve your financial goals. Cash-out refinance A cash-out refinance is a mortgage refinancing option in which the new loan amount exceeds the existing mortgage balance, allowing homeowners to access the home equity as cash. How it works A cash-out refinance involves refinancing your existing mortgage for a new one that’s more than you owe and pocketing the difference. Pros and cons Pros It might give you lower interest rates and may lower your payment Provides access to cash you can use for significant expenses Cons Requires closing costs It might extend the life of your loan Best for A cash-out refinancing is best for homeowners looking to reduce monthly payments or seeking to consolidate high-interest debts. Advertisement View Rates Compare financing solutions from Rocket Mortgage Offers both refinance and home equity solutionsCompetitive interest ratesCheck your eligibility with an online form Bridge loan A bridge loan is a relatively common type of short-term financing option designed to help homeowners manage the timing discrepancy between selling their current home and purchasing a new one. How it works A bridge loan provides temporary financing to fund the gap between buying a new home and selling an existing one. Pros and cons Pros Facilitates the purchase of a new property without selling your current home Offers immediate liquidity Cons Higher interest rates Typically requires significant equity in your current home (e.g., at least 20%) Best for A bridge loan is best for individuals purchasing a new home before selling their existing one. Home equity investment A home equity investment (HEI) is a financial arrangement where investors provide homeowners with cash in exchange for a share of the home’s future value. This is not a loan, so there are no monthly payments. How it works Investors provide cash upfront in exchange for a percentage of the home’s future appreciation. Pros and cons Pros No monthly payments Provides immediate cash without incurring debt Cons Reduces your home’s future equity and profit upon sale This may result in a significant share of appreciation going to the investor Best for A home equity investment is suited for homeowners who are comfortable sharing future appreciation for current liquidity and don’t want to make monthly payments. Home equity conversion mortgage (reverse mortgage) A home equity conversion mortgage (HECM) is a type of loan commonly referred to as a reverse mortgage. It’s a mortgage allowing homeowners 62 years of age or older to access the equity in their homes. This type of financing provides financial flexibility by converting part of the equity into cash without requiring monthly payments. How it works Allows seniors to convert part of their home equity into cash without selling their home. Pros and cons Pros Provides a lump sum of cash or an income stream without monthly payments Enhances financial flexibility in retirement Cons Can decrease the home’s value for the future heirs Accumulates interest over time, reducing the amount of equity left in the home Eligibility requirements Applicants must be 62 or older with substantial equity in their home. Best for A reverse mortgage suits seniors looking for additional income and wanting to remain in their homes. 401(k) loan A 401(k) loan is a financing option that permits employees to borrow from their 401(k) retirement savings. This type of loan is unique in that it involves borrowing against one’s future, with the individual repaying the borrowed amount plus interest back into their retirement account. How it works With a 401(k) loan, you can borrow money from your retirement savings and repay the loan with interest in your investment account. Pros and cons Pros It doesn’t impact your credit score Interest is paid back to your retirement account Cons Can jeopardize retirement savings if not repaid Not all 401(k) plans offer loans Best for A 401(k) loan is best for individuals with adequate retirement savings and who are looking for financing that doesn’t affect their credit score. Personal loan A personal loan is a flexible financial tool allowing individuals to borrow a set amount of money from a lending institution without needing collateral. It stands out for its simplicity and the speed with which borrowers can access funds. Personal loans are often used to consolidate higher interest-rate debt, finance large purchases, or cover unexpected expenses. How it works You’ll receive funding from a personal loan lender – typically a traditional bank, credit union, or online lender – and repay it in fixed monthly payments. Pros and cons Pros Quick funding It doesn’t require home equity or collateral Cons Generally comes with higher interest rates than secured loans Approval and favorable rates often require good-to-excellent credit Best for A personal loan is suitable for individuals who need immediate funds to cover significant expenses, debt consolidation, or emergencies without using their home as collateral. Best HELOC alternatives Credit cards and personal lines of credit are two top HELOC alternatives for individuals seeking flexibility without tying up home equity. Credit card A credit card is a type of financing that banks and other financial institutions issue. This type of financing provides users with a pre-approved credit limit that can be used on demand for purchases, cash advances, and balance transfers. Not only do credit cards allow immediate access to funds up to a specific limit and the option to carry a balance with interest, but they are distinguished from other financing by their flexibility. How it works Credit cards provide the cardholder with a revolving line of credit with a fixed credit limit, which the borrower can use and repay as needed. Pros and cons Pros Convenient for short-term borrowing Potential for rewards such as cashback and travel points Cons High-interest rates if balances are carried month-to-month It can lead to high debt accumulation if not managed properly Best for Credit cards are suited for individuals with short-term financial needs who can pay off the balance quickly to avoid accruing high interest and those looking to earn rewards for their spending. Personal line of credit A personal line of credit is a financial product that offers a flexible borrowing option similar to a credit card but often with higher credit limits and sometimes lower interest rates than credit cards. It provides a set amount of money to be drawn from as needed, offering a buffer for when cash flow is unpredictable or to provide funding for ongoing projects. How it works A personal line of credit is an unsecured, revolving account with a set credit limit from a financial institution or other lender. Pros and cons Pros Flexible access to funds Only pay interest on the amount drawn Cons Generally, it comes with higher interest rates compared to secured loans Approval and favorable rates often require good-to-excellent credit. Best for Personal lines of credit are best for borrowers seeking flexible access to funds for ongoing expenses, emergency funds, or projects without the need for collateral. Ask the expert Eric Kirste CFP® When choosing between different loan products, consider the following questions: 1) What is your plan for the funds—a one-time purchase, or do you need flexibility to take out funds over a period of time? 2) What is the type of payment you will need? Do you want a shorter fixed period to pay off the loan or want a longer more variable pay structure? 3) Lastly, but most importantly, is the budget. What does your cash flow look like to take on this debt and look at different scenarios in case rates go higher or stay higher longer than expected? Which alternative to a HELOC or home equity loan is best for you? Choosing the right alternative to a HELOC or home equity loan varies based on your financial needs, goals, and preferences. Each option provides unique benefits and considerations, making it essential to evaluate your needs carefully. To determine which alternative is best for you, consider the following: Funding requirement: Do you need a lump sum? A cash-out refinance or personal loan is best. For ongoing access, consider credit cards or personal lines of credit.Collateral requirements: Are you unwilling to use your home as collateral? Opt for a personal loan or line of credit.Financing term: For short-term needs, bridge loans are ideal; cash-out refinance suits long-term financing.Interest rate concerns: Cash-out refinances may offer lower rates. For flexibility despite higher rates, consider personal lines of credit or credit cards.Repayment preference: Are you trying to avoid monthly payments? Explore reverse mortgages (if you’re 62 or older) or home equity investments. If your priority is securing low interest rates with the possibility of tax-deductible interest and you don’t mind using your home as collateral, a home equity loan or HELOC might just be the best option. Assess your financial goals, risk tolerance, and home equity to make an informed decision.