If you’re like many Americans, your home is the single most valuable asset in your portfolio. That six-figure investment doesn’t just keep a roof over your head — it can provide a source of wealth and stability for years, and potentially generations, to come.
But sometimes, you need access to that wealth now — preferably in the form of cold, hard cash. And while refinancing can be one way to access your home’s value, you may not want to change your interest rate or other mortgage terms. Fortunately, there are ways to take equity out of your house without refinancing — though many of them do come with their own costs and risks. Below, we’ll dive into all the details so you can make an informed decision.
Can You Pull Equity Out of Your Home Without Refinancing?
The short answer: Yes, there are ways to get equity out of your home without refinancing (though cash-out refinancing is also a way to do so). From home equity loans to a home equity line of credit (HELOC) and reverse mortgages, there are a lot of ways to turn your home’s value into cash money — though they all come with their own pros and cons to consider. Let’s take a closer look.
Ways to Get Equity Out of Your Home Without Refinancing
Here are five ways to get equity out of your home without refinancing.
1. Home Equity Loan
A home equity loan is, as its name suggests, a loan that draws from the value of your home equity — which is the amount of your home’s value that you actually own (i.e., what you have paid back to your mortgage lender). You can take out a home equity loan without refinancing, and if you’ve been building equity for a while, doing so can be a relatively low-cost way to access a large lump sum of money in one fell swoop.
A home equity loan is sometimes known as a “second mortgage,” since it’s secured by the same asset as your original mortgage — your home. And just like your mortgage (and many other types of loans), a home equity loan is usually repaid in regular, fixed installments over a predetermined period of time, or term. This might be 10 or 20 years long.
Of course, home equity loans do come with drawbacks to consider. For one thing, your home will be at risk of foreclosure if you fail to repay the “second” mortgage, just as it is with the first. And although interest rates may be relatively low, closing costs apply, which can amount to thousands of dollars.
2. Home Equity Line of Credit (HELOC)
A home equity line of credit, or HELOC, works in a similar way to a home equity loan — but instead of a lump sum payment, you’ll get access to a flexible line of credit based on your home equity, which you can tap into as needed. You can think of it a little bit like a credit card, except your “credit limit” will be based on the equity you’ve built in your home.
HELOCs may be offered at a fixed or variable interest rate and usually consist of a draw period followed by a repayment period — so you’ll have a certain amount of time to draw from the HELOC and then a certain amount of time to pay it back. Most HELOCs allow borrowers to take out up to 80% or even 85% of their home’s value, minus whatever they owe on their mortgage — in other words, up to 80% of their home equity. Keep in mind that HELOCs may also be subject to origination fees and other upfront costs that can increase their overall expense.
3. Reverse Mortgage
A reverse mortgage is similar to a home equity line of credit. One type, a Home Equity Conversion Mortgage (HECM), is backed by the Federal Housing Administration (FHA) and is specifically for homeowners age 62 and over. Rather than making regular monthly repayments on the loan, the total doesn’t come due until you no longer live in the home.
Since interest and fees are added each month, the loan total goes up over time, while your home equity in turn goes down — and if you (and any coborrowers) die, the reverse mortgage is due immediately. Thus, this option might not be the right choice for those hoping to leave their home to their surviving family members. If the idea of an HECM appeals to you, you can meet with an HECM counselor to learn more.
Home Equity Investment
Otherwise known as Home Equity Agreements (HEAs), a home equity investment allows an investor to essentially buy some of your home’s future equity. This gives you access to cash up front without requiring you to pay back a loan over time — which many would call a win-win situation. Of course, in the long run, if your home appreciates substantially in value, you may end up paying a high rate of return to the investing company — and having less of your home’s value to create long-standing wealth for you and your family. Furthermore, not everyone can qualify for this relatively new financial arrangement.
Personal Loan
You might already know about personal loans — which, yes, can be taken out even by non-homeowners. But if you do own your home, you may be able to put down the deed as collateral, which could reduce the cost of the loan (since a secured loan is less risky to lenders) while also offering you the flexibility to use the borrowed money in just about any way you want.
Pros and Cons of Refinancing to Pull Out Home Equity
Of course, even with all the options described above, refinancing is still an option for those hoping to pull equity out of their homes. Here are some of the drawbacks and benefits of refinancing to pull out home equity, at a glance.
| Refinancing Pros | Refinancing Cons |
|---|---|
| Access to a large lump sum of money | You’ll owe closing costs |
| Potentially lower interest rate than credit cards or unsecured loans | If the market is less favorable than when you took out your original home loan, your overall interest rate may be higher |
| Possible tax deductions if you use the money to make eligible home improvements | Your overall owed amount will be higher and unless you choose a very short loan term, you could be paying down the loan for decades to come |
When Is It Worth Refinancing?
If your financial situation and market conditions have changed such that you’d likely qualify for a lower overall interest rate and better loan terms, refinancing a mortgage may be worthwhile — and if you need short-term cash, a cash-out refinance might be an option worth considering. That’s especially true if you plan to use the money for home improvements, in which case you may qualify for additional tax deductions.
The Takeaway
While cash-out refinancing offers a readily available way for many homeowners to access their home’s equity value as cash, there are plenty of other options worth considering. A home equity line of credit (HELOC), secured personal loan, and even a reverse mortgage can all help homeowners put some extra money in their pockets — so long as they know the potential drawbacks of each method.
SoFi now offers flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively low rates. And the application process is quick and convenient.
FAQ
Is it possible to withdraw home equity without refinancing?
Yes! There are many ways to take equity out of your home without refinancing. Some of the most popular options include home equity loans, home equity lines of credit (HELOCs), and reverse mortgages. It’s important to understand that each of these options comes with its own costs and associated risks, however.
What is the best way to take equity out of your home without refinancing?
There’s no one easy answer to this question, because the “best” way depends on your personal financial situation and how much cash you need access to. That said, Home Equity Lines of Credit (HELOCs) offer unparalleled flexibility when it comes to the amount you withdraw, which could save you from paying back money you didn’t need to borrow in the first place. Personal loans secured with your home’s deed may also be a relatively inexpensive and very flexible option.
Is taking equity out of your house a good idea?
Like any debt, taking equity out of your home could be a good decision or a bad one, depending on what you’re planning to use the funds for and how that action will shape your future finances. For instance, if you plan to use your home equity loan to make home improvements that might increase the property’s value substantially, doing so might be a smart investment. On the other hand, taking out a reverse mortgage — which will decrease your home’s equity over time — to go on a lavish vacation might be less advisable.
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