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 Jan 28, 2025 11-min read Expert Approved Expert Approved This article has been reviewed by a Certified Financial Planner™ for accuracy. Written by Cassidy Horton Written by Cassidy Horton Expertise: Banking, insurance, home loans Cassidy Horton is a finance writer passionate about helping people find financial freedom. With an MBA and a bachelor's in public relations, her work has been published more than a thousand times online. Learn more about Cassidy Horton Reviewed by Erin Kinkade, CFP® Reviewed by Erin Kinkade, CFP® Expertise: Insurance planning, education planning, retirement planning, investment planning, military benefits, behavioral finance Erin Kinkade, CFP®, ChFC®, works as a financial planner at AAFMAA Wealth Management & Trust. Erin prepares comprehensive financial plans for military veterans and their families. Learn more about Erin Kinkade, CFP® Home equity loans and HELOCs let you borrow against your home’s value, typically with lower interest rates than other loans. Both use your home as collateral but work differently: Home equity loans give you a lump sum, while HELOCs let you draw from a line of credit as needed. But HELOCs and home equity loans aren’t right for everyone. You have several alternatives if you don’t have sufficient home equity or would rather not use your home as collateral. Table of Contents Skip to Section 9 alternatives to home equity loans and HELOCsHow do you choose the best alternative ways to get equity out of your home? 9 alternatives to home equity loans and HELOCs We’ve identified nine HELOC and home equity loan alternatives. Each one is best for a specific need or circumstance, which we’ve highlighted in this table. Below the table, we’ll break down the full pros and cons of each alternative so you can decide which is best for you. Who should avoid a home equity loan or HELOC? Erin Kinkade CFP® If you’re considering a HELOC or home equity loan, you should consult a financial professional. But a general overview for those who should avoid or wait on applying for a HELOC or home equity loan are: Those with a variable income—either unemployed frequently, underemployed, beginning contract work, or building a client base—but contract workers who have a reliable income and a client base could be suited to borrow; homeowners with limited or no equity; those with poor credit (work on building it up first); those with high debt, and those who need quick cash. A HELOC and home equity loan come with long-term impacts. You should understand the risks, so anyone who could qualify but doesn’t have the time to do their research should wait until they have the time to make sure they understand the pros and cons. AlternativeBest forCash-out refinanceHomeowners seeking lower interest rates and longer repayment termsPersonal loanThose needing quick funding without using their home as collateral401(k) loanBorrowers with retirement savings who want funding that doesn’t affect their credit scoreBridge loanHomeowners planning to purchase a new property before selling the current oneHome equity investmentThose willing to trade future home appreciation for immediate cash without monthly paymentsHome equity conversion mortgage (reverse mortgage)Seniors with significant home equity who need cash or an income streamPersonal line of creditBorrowers wanting flexible access to recurring funding with no collateral requirementCredit cardPeople needing small, short-term financing and a quick repaymentRent-back agreement (home sale-leaseback)Homeowners ready to cash out fully but prefer to stay in their homes as renters Alternative 1: Cash-out refinance A cash-out refinance potentially has lower interest rates than a HELOC or home equity loan but higher upfront costs. With this option, you refinance your house for more than your remaining mortgage balance and receive the difference in cash. For example, if your home is worth $300,000 and you owe $150,000, you could refinance for $225,000 and get $75,000 minus closing costs. Who should and shouldn’t consider it? ✅ Consider it if you need a large lump sum, can secure a lower interest rate, and feel comfortable replacing your current mortgage with a brand-new one. ✖️ Reconsider if you’ve recently refinanced, already have a low mortgage rate, or can’t afford new closing costs. Pros and cons Potentially lower interest rate than current mortgage and HELOC combined Single monthly payment Possible tax deduction if used for capital improvements Higher closing costs than a HELOC Resets your primary mortgage term Less flexible than a HELOC for ongoing projects Alternative 2: Personal loan Personal loans have quick funding times (often just a business day or two) and don’t use your home as collateral. But because nothing is backing the loan, they often have higher interest rates than HELOCs or home equity loans. With a personal loan, you get a lump sum which you repay in monthly installments over one to seven years. These loans have fixed interest rates, so your payments are always the same. Who should and shouldn’t consider it? ✅Consider it if you need money quickly without risking your home and prefer fixed rates with consistent monthly payments. ✖️Reconsider if you need to borrow more than $100,000 (the maximum for personal loans in our research) or have poor credit that would result in high interest rates (often up to 36%) Pros and cons Faster approval and funding than HELOCs No risk to your home Fixed interest rates and predictable payments Higher interest rates than HELOCs for most borrowers Shorter repayment terms Lower borrowing limits No tax deductions for interest Alternative 3: 401(k) loan A 401(k) loan is a home equity loan alternative that lets you borrow from your retirement savings without a credit check. But because you’re essentially borrowing money from yourself, it can significantly reduce your retirement money. With a 401(k) loan, you can typically borrow up to 50% of your vested account balance or $50,000, whichever is less. You’ll repay the loan through payroll deductions, often over a maximum of five years. Who should and shouldn’t consider it? ✅ Consider it if you need a quick loan with no credit check and can repay it fast without hurting your retirement savings. ✖️Reconsider if you’re close to retirement, might change jobs soon, or can’t afford to reduce retirement contributions. Pros and cons No credit check required Potentially lower interest rates than HELOCs Interest is paid back into your account Reduces retirement savings and potential growth Must be repaid in full if you leave your job Possible taxes and penalties if not repaid on time Alternative 4: Bridge loan A bridge loan provides short-term financing to “bridge” the gap between buying a new home and selling your current one. It typically has faster approval times than a HELOC or home equity loan but higher interest rates and fees. Bridge loans are short-term loans, often lasting no more than a year. They allow you to access the equity in your current home before it sells. Who should and shouldn’t consider it? ✅Consider it if you’re buying a new home before selling your current one and can afford higher costs for fast funding. ✖️Reconsider if you’re unsure about selling your current home or can’t risk higher payments if it doesn’t sell fast. Pros and cons Faster approval and funding than HELOCs Allows you to buy a new home before selling your current one Usually paid back at once when your home sells Higher interest rates than HELOCs and home equity loans Shorter repayment terms Higher fees and closing costs Risk of paying two mortgages if your home doesn’t sell quickly Alternative 5: Home equity investment A home equity investment provides cash in exchange for a share of your home’s future appreciation, often with no monthly payments or interest. However, a home equity investment can be more expensive long-term than a HELOC if your home value increases drastically. Who should and shouldn’t consider it? ✅ Consider it if you need cash but can’t qualify for or afford monthly HELOC or home equity loan payments. ✖️Reconsider if you expect your home to appreciate quite a bit or plan to stay in your home long-term. Pros and cons No monthly payments or interest Doesn’t affect your credit score No risk of foreclosure Potentially more expensive long-term than a HELOC or home equity loan Reduces your profit when you sell your home Complex terms and conditions Alternative 6: Home equity conversion mortgage (reverse mortgage) A reverse mortgage is just for seniors aged 62 and up. Unlike with a home equity loan or HELOC, it doesn’t come with monthly payments. Instead, you pay it back when you move out or pass away. However, reverse mortgages can be more expensive long-term and reduce the inheritance left for heirs. Who should and shouldn’t consider it? ✅ Consider it if you’re 62 or older, plan to stay in your home long-term, and need additional income without monthly payments. ✖️Reconsider if you want to leave your home to heirs with full equity or might need to move soon. Pros and cons No monthly mortgage payments Doesn’t affect your credit score Can provide steady income or a lump sum payment Higher fees than HELOCs Reduces inheritance for heirs Complex terms and conditions Loan becomes due if you move out or die Alternative 7: Personal line of credit A personal line of credit has the same flexibility as a HELOC, but typically with higher interest rates and lower borrowing limits. You can borrow money as needed up to a predetermined limit for many purposes—college expenses, home improvements, medical expenses, and more—but it’s unsecured and doesn’t require home equity. Who should and shouldn’t consider it? ✅ Consider it if you need rolling access to funds for ongoing expenses but can’t (or don’t want to) risk your home. ✖️ Reconsider if you can’t qualify for the lowest interest rates based on your credit and income. Pros and cons No home equity required You can borrow from your credit line as needed Faster approval process than HELOCs Higher interest rates than HELOCs Potentially lower credit limits than HELOCs Variable interest rates are common Alternative 8: Credit card It takes just a few minutes to get approved for a credit card, and some lenders issue you a virtual card number to start using immediately (unlike HELOCs and home equity loans, which can take weeks for approval). However, you’ll likely get stuck with an outrageous interest rate unless you qualify for a 0% interest credit card. Much like a HELOC, you can take out cash advances and make purchases up to your credit limit. But the goal is to pay your balance in full each month if you can. Otherwise, the minimum payments can lead to long-term debt that’s hard to pay off. Who should and shouldn’t consider it? ✅ Consider it if you need to cover small, short-term expenses you can pay off quickly. ✖️ Reconsder if you need to borrow a large amount or will carry a balance for an extended period. Pros and cons Instant access to funds No collateral required Can earn points and rewards on purchases Much higher interest rates than HELOCs and home equity loans Lower borrowing limits Can lead to ongoing debt if not managed carefully No tax deductions for interest Alternative 9: Rent-back agreement A rent-back agreement is another home equity alternative. In this arrangement, you sell your home to a company or investor and then rent it back, typically for one to five years. Unlike a HELOC or home equity loan, you get a lump sum without debt, but you lose ownership of your home. Who should and shouldn’t consider it? ✅ Consider it if you need to access your home’s full equity quickly and are comfortable transitioning from homeowner to renter. ✖️Reconsider if you want to maintain long-term ownership of your home or live in an area with rapidly appreciating property values. Pros and cons Access to full home equity without debt No interest payments or credit requirements Ability to stay in your home after selling Loss of home ownership and potential appreciation Transition to paying rent Limited control over future living situation How do you choose the best alternative ways to get equity out of your home? The best way to pull equity out of your home will depend on your current financial situation and goals. Ask yourself these questions to decide: How much money do I need? Options such as personal loans have much lower borrowing limits than cash-out refinances and home equity investments. Why do I need the funds? What you plan to do with the money also matters. If it’s for home improvements, a cash-out refinance, HELOC, or home equity loan may be a good idea because of potential tax deductions. If you’re consolidating credit card debt but don’t want to risk your home, a personal loan may be better. Am I comfortable using my home as collateral? If not, consider personal loans, personal lines of credit, credit cards, or 401(k) loans that don’t require your home as security. What’s my credit score and income situation? Higher credit scores and stable income can qualify you for better rates on personal loans or lines of credit. How long do I plan to stay in my home? If you’re planning to move soon, a bridge loan or rent-back agreement might work better than long-term options. What are my long term financial goals? If retirement savings are a priority, avoid 401(k) loans. If you want to leave your home to heirs, a reverse mortgage might not be the best choice. In all, answering these questions will help you weed out bad home equity alternatives, so you can find the options that best fit your situation.