Can You Take Equity Out of Your Home Without Refinancing?

Mortgage refinancing—replacing an existing mortgage with a new one—can provide more favorable rates and terms than other methods of accessing your home’s equity. However, some homeowners hesitate to refinance due to fees and concerns about extending the loan’s repayment.

Those wishing to maintain their mortgage should know you can access your home equity without refinancing. Alternative methods include home equity loans, lines of credit, and investments.

In this article, we’ll provide an overview of these alternatives, discussing their pros and cons. Understanding these options can inform decisions about using your home equity effectively, whether for home renovations, debt consolidation, or to achieve other financial goals.

How to get equity out of your home without refinancing

Many homeowners build up equity in their homes over time, and there are ways to tap into this equity without refinancing your mortgage. Here are three options to consider:

Home equity option	What it is	Best for
Home equity line of credit (HELOC)	Revolving line of credit secured by your home’s equity, offering flexible borrowing and repayment	Flexibility in accessing funds
Home equity loan	Lump sum loan secured by your home’s equity, offering predictable payments	A specific, one-time expense
Home equity investment	Allows investors to buy a share of your home’s equity in exchange for giving you a lump sum payment	When you don’t want to take on more debt

Home equity line of credit (HELOC)

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Our top-rated HELOC

• Borrow from $15,000 to $400,000
• No in-persona appraisal needed
• Redraw up to 100% of funds
• Funding can be available in as few as 5 days
• Check your rate without impacting your credit

A home equity line of credit offers you a revolving line of credit secured by your home’s equity, providing flexibility in borrowing and repayment.

How it works

Borrowers can access funds from the HELOC as needed, up to a predetermined credit limit. Initially, repayment primarily involves making interest-only payments during the draw period, typically the first several years of the loan term. 

Following this period, borrowers enter the repayment phase, where they must make both principal and interest payments. It’s important to note that interest rates on HELOCs are typically variable, which means they can fluctuate over time based on market conditions.

Costs and fees

Closing costs for a home equity line of credit may include application fees, appraisal fees, and title or real estate attorney fees. Annual fees or transaction fees might also apply. Prepayment penalties may be charged if the HELOC is closed early.

Pros and cons

Pros

• Flexibility in accessing funds

• Interest payments may be tax-deductible if used for home improvements

Cons

• Variable interest rates can lead to payment fluctuations

• Potential for increased debt if not managed responsibly

Best for

HELOCs are best for those needing flexibility in accessing funds, such as homeowners with ongoing renovation projects or unpredictable expenses.

Home equity loan

A home equity loan offers a lump sum loan secured by your home’s equity, offers predictable payments, and usually includes a fixed interest rate.

How it works

A home equity loan grants the borrower a single lump sum payment determined by the equity they have in their home. This lump sum is usually disbursed upfront, providing the borrower immediate access to the necessary funds. 

Repayment is structured with fixed monthly installments over a preset term, allowing borrowers to plan and budget accordingly. Moreover, interest rates on home equity loans are often fixed, ensuring predictability in monthly payments and total interest costs throughout the loan term.

Costs and fees

Closing costs for a home equity loan often include application, appraisal, and title or real estate attorney fees. Additionally, some lenders may charge origination or application fees. Prepayment penalties may apply to a home equity loan if the loan is paid early.

Pros and cons

Pros

• Fixed interest rates offer predictability

• Lump sum payment is suitable for one-time expenses like debt consolidation or large purchases

Cons

• Limited flexibility compared to a HELOC

• Interest rates may be higher than on traditional mortgage loans

Best for

Home equity loans are best for homeowners with a specific, one-time expense, such as debt consolidation or funding a major home renovation.

Home equity investment

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Most flexible qualification

• Access up to $600,000
• No monthly payments or interest charges
• Assigned a dedicated Investment Manager
• Available in AZ, CA, FL, MI, MN, NV, NJ, NY, NC, OH, OR, PA, SC, UT, VA, and WA

Home equity investment allows investors to buy a share of your home’s equity in exchange for a lump sum payment, providing homeowners with cash without taking on debt.

How it works

In a home equity investment arrangement, homeowners receive a one-time payment from investors in exchange for sharing future appreciation in the value of their property. When the property is sold or the investment term ends, the investor is repaid.

It is important to note that a homeowner retains property ownership in a home equity investment arrangement. This is distinct from other options like a home-sale leaseback, where homeowners sell their property to an investor and then lease it back to gain access to their equity.

Costs and fees

Homeowners may need to pay administrative fees to the investment company offering the home equity investment product. Legal fees may apply for drafting contracts and agreements. There may be fees associated with terminating the investment agreement early.

Pros and cons

Pros

• Provides cash without taking on debt

• Allows homeowners to access equity without monthly payments

Cons

• Investors share in home appreciation, potentially reducing the homeowner’s equity upon sale

• Since few companies offer home equity investments, availability is lower than the other options

Best for

Home equity investment is best for homeowners who want to access cash without additional debt. It suits those with irregular income or who prefer to avoid making monthly payments.

Ask the expert

Erin Kinkade

CFP®

A nontraditional way to tap into home equity is to rent out unused space to create an income stream. If you are considering this route, consult a real estate agent and/or CPA familiar with the tax treatment of the income and expenses of doing this. Another somewhat traditional but not highly used or recommended method is obtaining a reverse mortgage. This is only for those age 62 or older in specific situations, but it could provide financial relief in your retirement or semi-retirement years. 

How do these home equity options compare to refinancing? 

Refinancing a home involves replacing your existing mortgage with a new loan, typically to secure more favorable terms such as a lower interest rate, shorter or longer repayment period, or cash-out option. 

Getting approved for a mortgage refinance requires similar steps to obtaining a new mortgage. These steps usually include a credit check, income verification, and an appraisal of the property’s value. 

Refinancing can benefit homeowners looking to lower their monthly mortgage payments, reduce the overall interest paid over the life of the loan (especially if they get a lower rate or shorter repayment term), or access cash for other financial needs.

Some of the key differences between mortgage refinancing and other home equity options are:

Feature	Mortgage refinancing	Other home equity options
Loan characteristics	Existing debt secured by your home’s equity will be paid off and consolidated into the new loan	Keep existing home financing (e.g. a mortgage)
Interest rates	Potentially lower interest rates, depending on market rates and your financial situation	Variable or fixed rates, depending on the product (e.g., HELOC, home equity loan)
Repayment term	New terms are granted, which may include extended or shortened repayment period	Varies based on product, ranging from ongoing revolving credit to fixed-term loans
Other notable features	Can provide cash-out options for homeowners needing access to funds	Allows you to borrow against home equity without replacing existing mortgage terms

When comparing mortgage refinancing to other home equity options, it’s essential to consider the facility’s interest rate, terms, and structure. Gaining insight into these differences can enable homeowners to choose the most suitable option for their financial goals and needs. 

What’s the best option to take equity out of my home?

Determining the best way to access your home equity varies depending on your financial situation and goals. Consider factors such as the amount of equity needed, the purpose of the funds, and your comfort with the repayment terms.

Assess the flexibility, interest rates, and repayment terms of home equity loans, lines of credit, home equity investments, or mortgage refinancing to find the most suitable fit for your needs. 

Once you’ve chosen a method, the next steps typically involve: 

• Finding a provider. 
• Gathering necessary documentation. 
• Applying and awaiting approval.
• Finalizing the transaction. 
• Managing the facility as agreed.

To find a provider, research and compare offers from different lenders or providers to secure the most favorable terms. Expect to provide such items as proof of income and information about your home.

Depending on the provider, getting approved after applying may take a few days or weeks. Upon approval, review the terms carefully before agreeing to them. Be prepared for any associated costs, like closing fees or administrative charges.

Finally, ensure you have a plan for responsibly managing the funds once you’ve received them. By carefully navigating these steps, you can balance accessing your home’s equity with maintaining financial stability.

Alternatives to taking equity out of your home

When evaluating ways to access home equity, you have several options if a HELOC, home equity loan, refinance, and home equity investment aren’t right for you.

Personal loans

Unlike equity-based products, a personal loan is unsecured, meaning you won’t have to use your home as collateral. Because of this, it often carries a higher interest rate.

Sell and downsize

Selling and downsizing is another option to extract equity. This is perfect if the home no longer suits your needs or is overly spacious. It provides a lump sum payment, but it also involves moving, which isn’t ideal for everyone.

Reverse mortgage

A reverse mortgage lets you tap into your home equity without selling the house. It’s easier for homeowners age 62 and up who want a steady income source. However, high upfront costs can be a disadvantage.

Rent out all or part of the property

Renting part or all of your home is another way to use your home’s value. It generates income but also introduces responsibilities as a landlord.

Government programs and grants

Depending on your situation, state and local governments, along with nonprofit organizations, offer programs and grants to help with home costs. These programs can provide financial relief without adding to your debt, but they often have strict qualification requirements.

Peer-to-peer lending

Peer-to-peer lending platforms can also be an avenue to get funds without going through a traditional financial institution. This online lending form often offers faster processing time but may come with higher interest rates.

FAQ

Does refinancing—or do any alternatives to home refinance—have tax implications? 

Yes, refinancing and its alternatives can carry tax implications. For instance, when you refinance, the mortgage interest may be tax-deductible. Other options, including home equity loans, offer the benefit of potentially deductible interest. 

Tax laws frequently change, and deductions may vary depending on specific situations. We recommend consulting with a tax professional to understand these implications.

Do refinancing, a HELOC, a home equity loan, and a home equity investment all affect your credit score similarly?

Refinancing and obtaining a home equity line of credit (HELOC), a home equity loan, or a home equity investment requires a hard credit inquiry, which might lower your credit score for a few months. 

However, the effect on your credit score for each can differ because of unique repayment terms, the amount borrowed, and the timeliness of payments. Keep your credit utilization low and make on-time payments to maintain a healthy credit score.

What are common eligibility requirements for a HELOC, home equity loan, home equity investment, and home refinance?

Eligibility requirements for a HELOC, home equity loan, home equity investment, and home refinance often include a satisfactory credit score, a consistent income stream, a certain amount of home equity, and a desirable debt-to-income ratio. 

The specific requirements can differ depending on the financial institution and the product you’re interested in.

What hurdles could arise if I’m considering a home refinance, a HELOC, a home equity loan, or a home equity investment?

Hurdles could include an inadequate credit score, a high debt-to-income ratio, and insufficient home equity. Market volatility can also affect interest rates and change the benefits of refinancing. Some homeowners may face difficulty in affording the closing costs.

Do market conditions change which products might be best for me?

Yes. For instance, when market interest rates are downward, you might benefit from a refinance or a home equity loan. However, in a rising market, keeping a flexible option, such as a HELOC, may be beneficial. Home equity investments depend on how much your home appreciates in value.