Table of Contents
Equity is one of the biggest perks of homeownership. The more you pay down your mortgage or the more your home grows in value, the more equity you have — and the more you can do with it.
Use it to renovate the house, put it toward your child’s college education, or even borrow from it in a pinch if you face unexpected medical bills or car repairs.
How do you go about tapping that equity, though? A cash-out refinance is one option, but it’s not your only choice. Here’s what to know about how to get equity out of your home without refinancing.
Key Points:
- Homeowners can access their equity without refinancing through home equity lines of credit, home equity loans, or home equity investments.
- Home Equity Lines of Credit (HELOC) allow borrowing as needed over 10 years with interest only on what is used. It is ideal for long-term projects but has variable rates and adds a second mortgage payment.
- Home Equity Loans (HEL) provide a lump sum with fixed rates and steady payments. They add a second monthly payment and carry the risk of foreclosure if payments are missed.
- Home Equity Investments (HEI) involve selling a stake in the home’s equity for a lump sum without any monthly payments or interest. The investor takes a share of the profits when the home is sold.
- Consulting a mortgage professional can provide advice tailored to individual budgets and goals.
Can you take equity out of your home without refinancing?
Yes, you can take equity out of your home without refinancing, and there are several ways to do so.
First, you can take out a home equity loan without refinancing. These are second mortgages that let you borrow from your home equity. You can also take out home equity lines of credit without refinancing, also called HELOCs. These are another type of second mortgage.
Finally, you can also use a home equity investment instead of refinancing. These are fairly new tools that let you tap your equity without taking on monthly payments or interest.
Home Equity Line of Credit (HELOC)
A home equity line of credit, or HELOC, is a kind of second mortgage, meaning it’s an additional loan on top of your main mortgage (whereas refinancing replaces your main mortgage).
With a HELOC, part of your home equity is turned into a line of credit, which you can withdraw from as needed over a period of 10 years. It works much like a credit card, allowing you to use (or not use) as much of the credit line as you’d like.
The perk of this is that you only pay interest on what you borrow, and you have a long time to withdraw funds. This is nice if you need money over an extended period or if you’re not sure how much something will cost, such as with an ongoing renovation project or medical treatment. The downside is that these have variable rates, so your rate and payment could change quickly. It also adds a second monthly mortgage payment to your household.
If you’re comparing a refinance with a HELOC, a refi might be better if it gives you a lower rate or payment than you currently have. A HELOC is likely better if you already have a low rate on your main mortgage loan; in today’s rate environment, refinancing likely means trading in that low rate for a much higher one. A HELOC can also be smart if you need funds for a prolonged period or aren’t sure of the total costs of something.
» MORE: See today’s refinance rates
Home Equity Loan
A home equity loan is another type of second mortgage you take out in addition to your main mortgage. Unlike a HELOC, though, you don’t get a line of credit to pull from over time. Instead, home equity loans give you a single lump-sum payment after closing. You’re then free to use the funds however you wish.
Home equity loans usually come with fixed rates, so you don’t need to worry about changing payments, and you can pick terms of up to 30 years. The drawback is that you have to deal with a second monthly payment, and as with any mortgage, it puts your home at risk of foreclosure. If you’re unable to make your payments, the lender can seize your home.
A home equity loan is usually a better option than a refinance if you don’t want to replace your current terms, rate, and payment on your existing mortgage. They can also be smart if you need a reliable monthly payment and you know how much you need to borrow. Refinancing may be a better choice if you’re worried about managing two payments or if you could qualify for a lower rate and payment than you have on your current loan.
Home Equity Investment (HEI)
A home equity investment is your third option for taking out home equity without refinancing. With this tool, you sell a stake in your home’s equity, in turn receiving a lump sum payment. You won’t make payments or pay interest for the money, but when you sell the home, the investor takes a cut of the profits.
Home equity investments are completely separate from your mortgage. They don’t require refinancing, they don’t add another payment, and they’re not even an additional loan. The big upside of this arrangement is that you’re not adding any new financial stress to your household or paying interest. You can also get potentially large amounts (as some home equity investment companies offer up to $600,000). On the downside, you could end up paying a hefty amount — much more than you borrowed — if your home grows a lot in value.
If you’re weighing a refinance vs. a home equity investment, look at the terms of your mortgage and compare them to current market conditions. If refinancing would give you a better rate or payment, it may be the best move. But if you need a large amount of funds, can’t handle a second monthly payment, and don’t plan to sell for a while, a home equity investment may be the better option.
How to Get Equity Out of Your Home Without Refinancing
Now you can see there are several ways to leverage your home’s equity without refinancing your current mortgage. Home equity loans and HELOCs are great options if you can manage a second monthly payment, or there are home equity investments if you’re willing to give away a portion of your future sales proceeds.
If you’re uncertain of the right choice for your scenario, talk to a mortgage professional. They can recommend the best tool for your budget and goals.
» MORE: Getting ready to buy or refinance a home? We’ll find you a highly rated lender in just a few minutes
More Reading
Want to read more about tapping into your home equity? Check out these recent articles.
Building Home Equity: The Five-Year Rule
Good and Bad Reasons for Tapping Home Equity
Using a Home Equity Loan to Help Sell a House
Home Equity Loan & HELOC Payment Calculator