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Home Equity

Alternatives to Home Equity Loans or HELOCs

Updated Jul 26, 2023   |   12-min read

If you are a homeowner and need cash to fund home repairs or a large purchase, a home equity loan or home equity line of credit (HELOC) can be an advantageous borrowing option.

These options have drawbacks. Both forms of credit often have origination or closing fees, and both also use your home as collateral, meaning you risk losing your house if you can’t make your payments.

Several alternatives might be a better fit if you don’t want to take that risk or pay those costs. Read on to learn more about each one.

In this guide:

When should you consider home equity loan and HELOC alternatives?

HELOCs and home equity loans can be convenient ways to access cash, but they’re not always the right fit. If you’re tight on savings, you may not be able to afford the closing costs and other fees.

These options also might not be wise if your income is inconsistent. This could make it hard to make your payments and might put you at risk of losing your house. The decision to tap into your home’s equity depends on your risk tolerance, financial situation, and personal preferences. 

You should also consider how you’ll use the funds and your tax goals. With home equity loans and HELOCs, you can only write off your interest costs if the funds go toward improving your home and you itemize your deductions. These loans have no tax advantages if you use the funds for anything else.

If you decide a home equity loan or HELOC is not for you, consider these alternatives for cash.

Personal loans

A personal loan is an unsecured loan you can use for any purpose. You won’t pay closing costs on these loans. Their interest rates are higher than home equity loans but are lower than most credit cards. 

Unlike HELOCs and home equity loans, personal loan amounts aren’t based on your home’s equity. Instead, the amount you can borrow with a personal loan depends on your income, credit history, and credit score. 

As far as repayment goes, you’ll usually need to repay a personal loan faster than a home equity product—within one to seven years. If you miss payments, you don’t have the risk of the lender taking your home, but it could still hurt your credit. 

Need help finding a lender? Compare our picks for the best personal loans.

Home equity loan vs. personal loan

Personal loan rates tend to be higher than rates on home equity loans because the loan is unsecured (the lender doesn’t have any collateral to seize if you stop making payments). 

Personal loans don’t have closing costs (though you might pay a single origination fee), and you often need to pay the money back faster. Home equity loans often come with repayment terms of 30 years, and personal loans last up to seven years. 

Home equity loanPersonal loan
Interest ratesLowerHigher
Collateral?Yes, your houseNo, unsecured 
Repayment termsUp to 30 years1 – 7 years
Closing costs? YesNo, but you might pay an origination fee

Home sale leasebacks

Home sale-leasebacks are a newer product that, for certain homeowners, may be a solid alternative to home equity loans and HELOCs.

With a home sale-leaseback, you sell your house to a company but continue to live there and pay rent. Some companies allow you to buy back your home down the line.

The benefit of home sale-leasebacks is that you don’t have to make payments on a loan (or interest) and can often access larger amounts of money than other options. They have no strict credit or income requirements. 

The downside is you no longer own your home and must pay rent.

Find out more about and see options in our home sale-leasebacks guide.

Home equity loan vs. home sale-leaseback

The biggest difference between a home equity loan or HELOC and a home sale-leaseback is in the latter, you no longer own your home.

Instead, you sell it to a company and then rent the home back. You won’t pay interest on a leaseback or take on any sort of debt to use one. Leasebacks also allow you to access large sums. You get the entire sale price for the home rather than a small portion of your equity.

Home equity loanHome sale-leaseback
Adds debt?YesNo
Loan amountUp to around 80% of your home’s value, depending on the lender, minus your current mortgage balanceYour home’s full sale price
Who owns the home?YouLeaseback company
TermsUp to 30 years12-month lease, renewable, and you may be able to buy back your home

Home equity sharing agreement

With a home equity sharing agreement, a company gives you money upfront in exchange for a portion of the proceeds of your future home sale. The company invests in your property while allowing you to access your home equity.

Like a home sale-leaseback, you won’t make monthly payments or pay interest with equity sharing agreements. You repay the money plus a portion of the equity gained when you sell the home or buy out the investment. Many companies require you to do this within 10 to 30 years. 

To find out more, read our home equity sharing agreements guide.

Home equity loan vs. home equity sharing agreement

Home equity loans and HELOCs entail borrowing money and paying interest to do so. Home equity sharing agreements are more like bringing in an extra investor on your property. They share in any growth or loss in your home’s value and give you a lump sum in return for that stake.

This may be more expensive than a home equity loan. If your home appreciates considerably by the time your term ends, you could owe a hefty share of your profits to the equity sharing company.

Home equity loans and home equity sharing agreements come with fees. These vary by company, but with home equity sharing, you’ll pay about 3% of the total amount you receive.

Home equity loanHome equity sharing agreement
Closing costs?YesYes
Monthly payments?YesNo
Adds debt?YesNo
Takes a share of your home’s future value?NoYes
Repayment termUp to 30 years10 – 30 years

Cash-out refinance

Another viable alternative to a home equity loan or HELOC is a cash-out refinance, where you refinance your primary mortgage for more than you owe and get the difference in a lump sum.

For example, if you owe $100,000 on your mortgage and refinance it to $150,000, you would get $50,000 in cash. You would then make monthly payments on your new mortgage and use the cash as you see fit.

A cash-out refinance may be a sensible option if you are eligible for lower rates than you are paying on your mortgage. Your new rate may also be lower than you would receive on a home equity loan or HELOC.

Cash-out refinances and home equity products have closing costs, but those on cash-out refinances tend to be higher. Compare the total long-term costs of each to decide which is a better option for you.

Home equity loan vs. cash-out refinance

A home equity loan is a type of second mortgage. It comes with a second payment in addition to your current mortgage—meaning you’ll owe two payments per month. Cash-out refinances are different. They replace your mortgage with a new one, giving you just one payment.

Both options have closing costs, but you’ll typically pay more on a cash-out refinance than a home equity product. A cash-out refinance interest rate will often be lower and may allow you to reduce your mortgage rate and save on long-term interest costs.

Home equity loanCash-out refinance
Type of mortgageSecond; comes with an additional monthly paymentFirst; replaces your mortgage
InterestOften higherOften lower; may also allow you to reduce your mortgage rate
Loan amountUp to around 80% of your home’s value, depending on the lender, minus your mortgage balanceTypically up to around 80% of your home’s value, depending on the lender
Repayment termsUp to 30 yearsUp to 30 years

See our guide to home equity loans vs. cash-out refinancing to learn more.

Credit cards

Credit cards offer a line of credit similar to a HELOC. It makes borrowing for any purpose easy, but it is also quite expensive. Average credit card interest rates are higher than home equity loans, mortgages, and most personal loans.

Credit cards can be helpful if you need a large amount or a continuous stream of funds over time, but paying any charges off within a few months is best. If you can’t, you may incur hefty interest fees and be in a vicious cycle of debt. This could also hurt your credit score.

If you already have a credit card you can use, you won’t need to go apply for a new one, and you won’t pay upfront financing costs.

Home equity loan vs. credit cards

Home equity loans and credit cards have many distinctions. Home equity loans give you a single lump sum, and credit cards offer access to continuous cash over time. 

Credit cards have much higher interest rates, often resulting in high long-term interest costs if you don’t pay off your balances quickly. On the other hand, home equity loans offer a lower interest rate and a set monthly payment, allowing you to pay off your balance over many years. 

Home equity loanCredit cards
Interest ratesLowerHigher
Loan amountSingle upfront payout

Determined by how much equity you have in your home
Access to revolving credit line over time

Determined by your credit score and income
RepaymentMonthly; up to 30 yearsMonthly; quick payoff is key to reining in interest costs

Manufacturer and dealer financing

If you’re buying a car, truck, boat, or RV, the manufacturer or dealer may offer their own form of financing. Depending on the product and expense, they may offer repayment terms of seven to 10 years. 

Loans from a manufacturer or dealer are secured, meaning they can seize the property you financed with them (the car, for example) if you don’t make your payments.

Interest rates on these loans depend on your credit score, the product, and the dealer’s or manufacturer’s size and reputation. If you qualify for a promotional deal, they may even be less than the interest rates on home equity loans or HELOCs.

Manufacturers offer low interest rates, sometimes as low as 0%, as marketing incentives on new vehicles. In these cases, manufacturer financing could be a far better option than a home equity product if you can pay off the balance before any promotional rate expires and your interest costs rise.

Home equity loan vs. manufacturer and dealer financing

Home equity products and manufacturer financing are secured loans. They put your home, car, boat, or RV on the line, and if you don’t stay on top of payments, you could lose them to foreclosure or seizure.

Dealer financing has the potential for lower interest rates, but sometimes, these are promotional rates only. Be clear on the fine print and when interest rate hikes may occur. You should plan to pay off your balance or refinance before this point to avoid increasing payments. 

Home equity loansManufacturer and dealer financing
Interest ratesMay be higherMay be lower, at least at the start
TermsUp to 30 yearsUp to 10 years
Loan amount Up to around 80% of your home’s value, depending on the lender, minus your current mortgage balanceThe full sale price of the product you’re purchasing, minus any down payment

How to determine which product is best for your situation

Home equity loans, HELOCs, and alternatives have unique benefits and drawbacks, so considering your options is important. 

To recap, here’s when each home equity loan and HELOC alternative would be best used:

  • Credit card: Consider if you need cash fast or over an extended period—but only if you can pay off your charges in short order. Credit cards can be helpful if you have an account open and don’t need to apply.
  • Cash-out refinance: Consider if you can get a lower interest rate than your current loan. It can also help if you’re looking to borrow money without taking on a second monthly payment.
  • Sale-leaseback or home equity sharing agreement: If you don’t want any monthly payments or interest, consider these options. They also don’t add long-term debt.
  • Personal loans: Personal loans can be wise if you don’t want to use your home as collateral. 
  • Dealer/manufacturer financing: This option is best if you’d use the funds from your home equity loan or HELOC to buy a car, boat, or other similar purchase. Just be wary of promotional interest rates.

Always weigh your personal finances and goals, and factor in the long-term risks and costs of borrowing. Consider several lenders or investment companies to ensure you get the best deal.