Home equity is the difference between your home’s current value and what you still owe on your mortgage. As you pay down your loan or your property value changes, that equity may grow.
You may be able to borrow against a portion of it without selling your home. The most common options are a home equity line of credit (HELOC), a home equity loan, and a cash-out refinance.
Which one makes sense depends on your existing mortgage, how much you need to borrow, when you need the money, and what you plan to do with it.
How Can You Access the Equity in Your Home?
There are a few ways to get equity out of your home, and they do not all affect your mortgage the same way.
| Option | How You Receive the Funds | What Happens to Your Current Mortgage | May Be Useful When |
| HELOC | Borrow from a revolving line of credit as needed | Stays in place | Costs will occur over time, or you are unsure of the final amount |
| Home equity loan | Receive a lump sum | Stays in place | You know approximately how much you need upfront |
| Cash-out refinance | Receive cash through a new, larger mortgage | Existing mortgage is replaced | Refinancing your first mortgage also fits your financial plans |
Rates, costs, repayment structures, and qualification requirements vary between these options.
Home Equity Line of Credit
A HELOC is a revolving line of credit secured by your home. During the draw period, you can generally borrow from the available credit when you need it rather than taking the full amount upfront.
That structure can be useful for an expense that will happen in stages. A homeowner renovating a property, for example, may need to pay a contractor, purchase materials, and cover other costs at different points in the project.
You generally pay interest on the amount you have borrowed rather than the full available credit line. HELOCs commonly have variable interest rates, so your rate and payment may change over time.
Home Equity Loan
A home equity loan provides a lump sum based on a portion of the equity in your property. It is separate from your first mortgage and is typically repaid through scheduled payments over a set term.
This can make it easier to plan for an expense when you already know approximately how much it will cost.
Home equity loans are also sometimes referred to as closed-end second mortgages.
Cash-Out Refinance
With a cash-out refinance, your existing mortgage is replaced with a new loan for more than you currently owe. Your previous mortgage is paid off, and you receive a portion of the difference in cash after applicable costs and adjustments.
Because the first mortgage itself is changing, it is important to compare more than the amount of cash you could receive.
Look at the terms of your existing mortgage alongside the proposed interest rate, monthly payment, loan term, and closing costs of the new loan. Replacing an existing mortgage can have a much broader financial impact than adding a separate home equity loan or HELOC.
Can You Take Equity Out of Your House Without Refinancing?
Yes. A HELOC or home equity loan may allow you to access home equity without replacing your existing first mortgage.
This distinction can matter if you want to keep the terms of your current mortgage. Instead of refinancing the entire mortgage to receive cash, you could consider separate financing secured by the equity you have built in the property.
That does not automatically make a HELOC or home equity loan the better choice. The cost of the new financing, repayment terms, payments, and amount you plan to borrow still need to be compared with a cash-out refinance.
5 Ways to Use Home Equity
Access to home equity can provide another source of funds for larger expenses or financial plans. Because the borrowing is secured by your property, it is worth looking carefully at what the money will be used for and what the new debt will cost.
1. Renovate or Improve Your Home
Homeowners may borrow against home equity to pay for renovations, repairs, or improvements to the property.
That could include remodeling a kitchen or bathroom, repairing part of the home, adding living space, or completing another major project.
The timing of the expenses can help determine which financing structure is a better fit. If you know the total cost and need the money upfront, a home equity loan may be worth considering. A HELOC may make more sense when expenses will occur gradually, and you want to draw funds as the work progresses.
Some improvements may affect a home’s value, but homeowners should not assume that every dollar spent will produce an equal increase in the property’s future value.
2. Buy a Second Home or Investment Property
Equity in one property may also be used to help finance the purchase of another.
A homeowner might access equity from a primary residence to put toward the down payment or other expenses associated with a second home or investment property. This allows you to access capital tied up in an existing property without selling it.
It also adds debt. Before using home equity for another real estate purchase, consider the borrowing costs and payments associated with both properties.
3. Consolidate Higher-Cost Debt
Some homeowners use home equity to pay off other outstanding balances.
If debt has a higher borrowing cost, replacing it with financing secured by a home may change the interest rate or payment structure. But the interest rate alone does not tell you whether the move will save money.
The repayment period, closing costs, fees, monthly payment, and total amount of interest paid over time also matter.
There is another important difference. Unsecured debt does not use your home as collateral. If that debt is paid off with a HELOC, home equity loan, or cash-out refinance, the new debt is secured by your property.
4. Fund a Business or Investment Opportunity
Borrowing against home equity can give homeowners access to capital that would otherwise remain tied up in their property.
Some may consider using those funds for a business or another investment opportunity rather than selling the home to raise cash.
The risk deserves careful attention. A business or investment may not produce the expected return, but the home equity debt still has to be repaid. The potential return should be considered alongside the cost of borrowing and the added debt secured by the property.
5. Pay for a Major Planned Expense
Home equity may also be used to cover a significant planned expense, including education costs or another large financial obligation.
Before financing a one-time expense with home equity, consider how long you will be repaying it. Spreading the expense across a longer loan term may lower the monthly payment, but it can also mean carrying the debt for years after the original expense is over.
The payment should fit within your budget without relying solely on the fact that equity is available.
Which Way to Access Home Equity Makes Sense for You?
How you expect to use the money is a useful place to start.
A HELOC may be worth considering if you need access to funds at different times. A home equity loan may be easier to plan around when you know the amount you need and want to receive it upfront.
A cash-out refinance requires a different calculation because it replaces your first mortgage.
If your current mortgage has terms you want to keep, options that let you access home equity without refinancing may deserve a closer look. If replacing the first mortgage also fits your plans, a cash-out refinance may be another option.
As you compare them, look at the amount you need to borrow, your current mortgage terms, the cost and repayment structure of the new financing, applicable closing costs and fees, your monthly budget, the amount of equity that will remain in the property, and how long you expect to own the home.
A lower initial payment or interest rate does not necessarily mean a lower overall cost. The full terms of each option provide a more useful comparison.
Talk With GuardHill About Your Home Equity Options
GuardHill can help homeowners compare ways to access home equity based on their property, existing mortgage, financial qualifications, and plans for the funds.
Depending on the circumstances, that may include a HELOC, home equity loan, cash-out refinance, or another financing structure. Comparing the options side by side can help you understand how much equity may be available and what each choice would mean for your current mortgage and monthly obligations.
Frequently Asked Questions About Home Equity
How much equity can you take out of your home?
The amount you may be able to access depends on your home’s value, current mortgage balance, property type, financial qualifications, and the financing option you choose. Individual loan programs may also require a certain amount of equity to remain in the property after you borrow.
Can you take equity out of your house without refinancing?
Yes. A HELOC or home equity loan may allow you to borrow against home equity while keeping your existing first mortgage in place. A cash-out refinance works differently because it replaces your current mortgage with a new, larger loan.
What is the best way to access home equity?
The best option depends on how much you need, when you need the money, how you plan to use it, and the terms of your existing mortgage. A HELOC provides a revolving line of credit, a home equity loan provides a lump sum, and a cash-out refinance replaces your current mortgage with a larger loan.