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Home Equity Home Equity Loans

Can You Take Out a Home Equity Loan on a Paid-Off House?

A home equity loan allows you to turn your equity into cash, which you can use for repairs, improvements, or any other expenses you might need to cover.

You may be able to get a home equity loan while you have a balance on your first mortgage, but it’s not guaranteed. If your main mortgage is paid off, it can improve your chances of qualifying for a home equity loan.

Here’s everything you need to know.

How a paid-off house can improve your chances of getting a loan

Your loan-to-value ratio (LTV)—or how much the loans against your house compare to its current value—is a large factor in whether you qualify for a home equity loan and how much you can borrow.

Generally speaking, the lower your LTV is, the less risky you are to lenders, and the easier it is to get approved. Having your home paid off means you don’t have an outstanding balance on a mortgage, and your LTV is likely zero. This is a terrific sign for lenders.

Most lenders allow you to access 80% to 85% of your home’s value—minus any mortgage balance. If you have no balance, you might be able to borrow up to 85% of your home’s total value.

  • On a home worth $400,000, that’s a lump sum of $340,000 ($400,000 x 85%).
  • If you didn’t have a paid-off house and your mortgage was $150,000, you’d only be able to access $190,000 [($400,000 x 85%) – $150,000].

Home equity loans for a paid-off house

If you own your home outright and need a loan, a home equity loan is just one option. You might also consider a home equity line of credit (HELOC) or a cash-out refinance.

Loan typeBest forOur recommended lender
HELOCRecurring expensesFigure
Home equity loanLump sum with fixed-rate repaymentSpring EQ
Cash-out refinanceThose with sufficient cash for closing costsSoFi

Here’s what each of these options entails.

Use a HELOC on a paid-off house

A HELOC is a type of mortgage that works like a credit card. It turns your equity into a line of credit, which you can withdraw from as needed over an extended period. These can be solid options if you’re not sure how much money you’ll need or if you have recurring expenses.

Most HELOCs require interest-only payments until your draw period ends—often 10 years. After that, you’ll begin making full interest and principal payments to the lender.

Many HELOCs have variable interest rates, meaning your rate can increase over time. However, see below for a lender that offers a HELOC with fixed rates.

Here’s a lender offering a HELOC for a paid-off house

Editorial selection: Best online HELOC

  • Flexible terms: Redraw up to 100%, borrow up to $400,000
  • Use to consolidate debt or finance your next project
  • 100% digital app & online appraisal
  • Check your rate without affecting your credit

Figure is a terrific option if you’re looking for an online lender that can get you quick funds and plan to use your full credit line. You must draw 100% of the line of credit after closing with additional withdrawals permitted during the two- to five-year draw period, and you can use the funds however you’d like. Figure charges no closing costs or out-of-pocket costs.

If you’re unsure whether Figure is right for you, you can prequalify—with no risk to your credit score—and get a free quote.

Here are several important details about the product:

  • Fixed rates (APR): 8.10% – 16.30%
  • Loan amounts: $20,000 – $400,000
  • Draw period: 2 – 5 years
  • Repayment terms: 5, 10, 15, or 30 years
  • Origination fee: Up to 4.99%
  • Maximum LTV: 85%
  • Minimum credit score: 640

Use a home equity loan on a paid-off house

A home equity loan is different from a HELOC. Instead of a credit line you can use as time, home equity loans give you a one-time lump-sum payment at closing.

With a home equity loan, repayment looks much like it does on your first mortgage. You’ll pay the loan back—plus interest—monthly until the entire loan is paid off. Typical home equity loan terms range from five to 30 years, depending on the lender.

Interest rates on most home equity loans are fixed, so your rate and payment won’t jump over time. Because they’re secured by collateral (your house), they also tend to have lower rates than other types of loans and credit cards.

Here’s a lender offering a home equity loan for a paid-off house

Editorial selection: Best multi-product application

  • Access up to 95% of your home’s equity
  • Check your eligibility for a home equity loan and HELOC

If you’re eyeing a home equity loan on your paid-off house, Spring EQ is an option. The lender offers home equity loans and HELOCs that can access up to 95% of your equity.

Spring EQ doesn’t disclose its interest rates or fees, but here are several other important details about the product:

  • Loan amounts: $25,000 – $500,000
  • Repayment terms: 5 – 30 years
  • Maximum LTV: 95%
  • Minimum credit score: 620

Use a cash-out refinance on a paid-off house

A cash-out refinance is another way to leverage the equity you have in your house. Typically, you’d use a cash-out refinance to replace your mortgage with a new one at a higher balance, and pocket the difference between the two balances at closing.

If you don’t have a mortgage, you can still do a cash-out refinance—and it might even mean a lower interest rate than other financing options.

But closing costs tend to be high on cash-out refinances, so make sure you have cash on hand to cover these. According to Freddie Mac, the average closing costs on a refinance are around $5,000.

Here’s a lender offering a cash-out refinance for a paid-off house

  • Speak with a mortgage loan officer
  • Funds usually available within 30 days after completing paperwork
  • Check your rate without affecting your credit

If you’re considering a cash-out refinance, SoFi might be an option. The online bank offers loans, credit cards, insurance, credit cards, and more. 

SoFi doesn’t disclose many details about the product, but here’s what we found:

  • Repayment terms: 10, 15, 20, or 30 years
  • Maximum LTV: 80%

How to apply for a home equity loan if your house is paid off

You can apply for a home equity loan, HELOC, or cash-out refinance in four general steps.

1. Find a lender

First, shop around for lenders. You’ll want to apply with banks, credit unions, online lenders, and other options to be sure you get the best deal.

2. Apply and submit the required documentation

Your lender will require various financial documents to prove your income, assets, and debt. This might include W-2s, tax returns, 1099s, bank statements, and more. You’ll also need to agree to a credit check, which allows the lender to evaluate your payment habits and history with debt.

3. Get an appraisal

The lender will order an appraisal of your house to determine its current market value. This is how it calculates your LTV and how much equity you can access.

4. Close on your loan

You’ll attend a closing appointment, where you’ll pay your closing costs and sign your loan paperwork.

If you’re getting a home equity loan or cash-out refinance, you should see the lump sum in your bank account within a few days. With a HELOC, you should get a debit card and a checkbook that allows you to access your credit line.

What are the benefits and downsides of taking out a loan on a paid-off house?

As with any financial move, consider the advantages and drawbacks of taking out a loan against a paid-off house.


  • Access to large amounts of cash

  • Lower interest rates than many other financial products

  • Use the funds for any purpose


  • Comes with closing costs

  • Could put your home at risk of foreclosure

  • You’ll need to make monthly payments

Should you take out a loan on a paid-off house?

Owning your home in full can make it easy to access cash when you need it without selling your house or paying sky-high interest rates like a credit card.

Still, it’s not right for everyone. Closing costs can be high, and the loan will use your house as collateral, so if you’re unsure you can make the new monthly payments—or if it would strain your finances—give it plenty of thought.

If you opt to take out a loan against your home, map out a monthly budget to ensure you have the cash to cover your payments. You should also have enough savings to cover your closing costs—plus a few months of expenses in an emergency fund.