Home is a place to rest your head, a sanctuary for your family, and for most, the star of your financial portfolio.
Home equity is built over years by making one after another of those monthly mortgage payments, during which, your home appreciates in value. Equity isn’t just a far-off potential profit if you sell your home—it’s a valuable asset that you can access now.
A cash-out refinance is one way to trade equity for funds, but it’s not the only way forward. There are several options that you can use to convert your equity to cash. Below we’ll explore how to get equity out of your home without refinancing.
Is It a Good Idea to Take Equity out of Your House?
If you know how to use home equity properly, you can build wealth separate from your property value, but this also comes with risks. Be sure to evaluate if you can avoid or weather:
- Foreclosure or liens against your home if you cannot repay a loan amount
- A significant hit to your credit score if you default on a loan
- Another payment to juggle on your monthly budget if you borrow against it
- The loss of equity as debt security to cover a future emergency
Because borrowing against your home includes the worst-case risk of foreclosure, experts recommend avoiding it for the purpose of meeting ongoing living expenses or for fleeting or want-vs-need expenditures. For some, an equity-based loan is worth it to:
- Invest in something with growth potential, like a business start-up or expansion
- Pay for education expenses chosen to yield career opportunities
- Fund family needs like a medical procedure or adoption
5 Ways to Get Equity Out of Your Home Without Refinancing
Primary mortgage refinancing today is a risky game—unless it was taken out in the 20th century, then you’d likely be trading in for a higher interest rate. Until 2022, the average 30-year fixed mortgage rate was below 5% (and down to an all-time low of 2.65% in early 2021).1 Since late summer 2023, however, the average mortgage rate has been above 7%.
The good news? There are alternative ways to get equity out of your home without refinancing your existing mortgage.
#1 Home Equity Loan
A home equity loan is a second mortgage that typically allows you to borrow a large chunk of your equity.
Because it’s secured by your property, you will have a lower interest rate than with an unsecured personal loan or credit card. As of September 2023, the average fixed rate range for home equity loans is 8.01% – 9.91%.2 With that being said, there are still pros and cons of home equity loans.
- You can borrow as much as 85% of your equity with most lenders3
- You’ll have predictable monthly repayments with these lump-sum, fixed-interest loans
- Choose a 10, 15, or 30-year term to control your monthly payment amount
- Adding another principal-plus-interest payment to your monthly budget
- Risk of losing your home if you can’t repay
- Must meet the lender’s credit score minimum, usually 620 to 7003
- Cannot exceed the lender’s debt-to-income (DTI) ratio maximum, usually 36% to 43%3
#2 Home Equity Line of Credit (HELOC)
HELOCs are similar to home equity loans in terms of the lender requirements and equity borrowing limits. As of September 2023, the average rate range for HELOCs is 8.46% – 9.71%.2
The big differences between a home equity loan vs HELOC are that HELOCs come with:
- A revolving line of credit rather than a lump sum
- A variable interest rate rather than fixed
- An initial period of interest-only repayments before you start repaying principal
You might opt for a HELOC over a lump-sum home equity loan if you want:
- The cushion of available funds but don’t have a set amount you need now
- To delay monthly repayment of principal for up to a decade
- The ability to borrow, repay, and borrow again from a revolving line of credit
#3 Reverse Mortgage
Designed to help equity-rich, cash-poor retirees hold on to their homes and supplement fixed retirement incomes, a reverse mortgage can be a nightmare or a dream come true. While you have to avoid predatory lenders and dubious marketing targeting seniors, a borrower with a thorough understanding of the contract terms and requirements can benefit as intended.
The most common type of reverse mortgage is the HECM (home equity conversion mortgage) which is federally insured by the FHA (Federal Housing Administration) and available from a limited pool of specialized lenders.4
The loan amount you can borrow ranges from 30% to 60% of the equity on your primary residence, calculated by a formula that takes your age, home value, fund distribution method, FHA lending limits, and the interest rate into account.5 As of September 2023, the average rate range for HECMs is 7.06% – 7.43%.6
To be eligible for a reverse mortgage loan, you must:
- Be at least age 62
- Either own your home in full or own a substantial percentage (50% per most lenders)7
- Have no federal debt delinquency
- Have made timely property payments in past two years (no credit score requirement)8
- Funds can be received as a line of credit, lump sum, monthly payouts, or combination
- Loan repayment isn’t due until the homeowner dies or the property changes hands
- If you opt for a line of credit, it will grow over time along with your property value
To avoid foreclosure and loss of your home, you must9:
- Contact your mortgage lender as soon as you realize you have a problem
- Know your mortgage rights so you know what your lender may do if you can’t make payments
- Understand foreclosure prevention options (loss mitigation)
#4 Home Equity Investments
The rise in home values over the past few years has prompted investors to find more ways to earn from residential real estate than by simply buying more rental property. Home equity sharing contracts can bring outside investors to your door.
The process entails:
- An investment company purchases a minority stake in your home
- They have no right of occupancy or use of your property, just an investment stake
- You receive the cash amount of that percentage of your home’s current value
- The contract ends after 10 – 30 years, or immediately if you sell your home10
- You repay the investors the original cash payout plus the cash value of how much their stake in your home appreciated over the life of the investment
The biggest pros for home equity investments are:
- Cash upfront
- No monthly repayments
- No interest
- No loan to affect your credit history and score
- Easier financial qualifications—minimum credit score tends to be 500
On the downside, cons include:
- Much smaller slice of equity conversion—usually limited to 17.5% or 30% of equity
- Payback to investors will be a large lump sum that may be difficult to budget for
- You could owe more than expected if property values take another significant rise
#5 Residential Sale-Leasebacks
Are you familiar with sale-leaseback (SLB) programs? They have a long history in the business world but are relatively new to residential real estate, and are particularly useful if an owner is equity-rich but cash-poor (regardless of age).
Instead of taking out a home loan against some of your equity, or selling your home and moving out, an SLB provides the best of each option. You get the benefit of a sale plus the use of the property:
- Sell your home to a landlord buyer and receive your equity in cash, and
- Stay on as a renter, with the legal right to remain for the length specified in your lease.
There are many benefits of a sale-leaseback. You’re no longer growing home equity as a resource even though your monthly rent payments are indirectly paying the mortgage. On the other hand, switching from homeowner to renter may lower your monthly housing cost—no more property tax, homeowner’s insurance, or covered repairs and maintenance.
Refinancing isn’t your only way to get an equity release. A home equity loan or HELOC is a secondary debt against your house that can be used for either a sum of cash or a revolving credit line similar to a credit card. Both provide a lower interest rate than unsecured debt, although rates have risen alongside standard mortgage rates over the past two years.
For adults 62 and older, a reverse mortgage loan can be a good fit to obtain a cash sum, monthly payouts, or a line of credit. Regardless of how you access the loan proceeds, neither principal nor interest are due until the homeowner dies or moves out of the house.
A newer option available in some states is home equity investment sharing, which generates upfront funds and requires no monthly payments. However, it does entail a large, lump-sum payment back to the investors at the end of the loan term for the initial investment plus the value of its appreciation.
Finally, the only fully debt-free option covered above is a sale-leaseback. An SLB allows homeowners to remain in place as renters from a month to the rest of their lives after receiving the full benefit of a home sale—100% of their equity converted to cash.
- FRED. 30-Year Fixed Rate Mortgage Average in the United States. https://fred.stlouisfed.org/series/MORTGAGE30US
- Bankrate. Current home equity interest rates. https://www.bankrate.com/home-equity/current-interest-rates/
- Bankrate. Requirements for a home equity loan or HELOC in 2023. https://www.bankrate.com/home-equity/requirements-to-borrow-from-home-equity/
- Investopedia. Reverse Mortgages in America: The Statistics. https://www.investopedia.com/reverse-mortgages-america-statistics-5224801
- RetirementLiving. 2023 Reverse Mortgage Lending Limits. https://www.retirementliving.com/reverse-mortgage-lending-limits
- All Reverse Mortgage, Inc. Current Reverse Mortgage Rates: Today’s Rates, APR | ARLO™. https://reverse.mortgage/rates
- Forbes. Reverse Mortgages: How They Work And Who They’re Good For. https://www.forbes.com/advisor/mortgages/reverse-mortgages/
- All Reverse Mortgage, Inc. Credit Requirements for a Reverse Mortgage in 2023. https://reverse.mortgage/credit-requirements
- U.S. Dept. of Housing and Urban Development. Foreclosure Tips. https://www.hud.gov/topics/avoiding_foreclosure/foreclosuretips
- NerdWallet. What Is a Home Equity Sharing Agreement? https://www.nerdwallet.com/article/mortgages/shared-appreciation-home-equity