The 3 main ways to pull equity out of your home

Your home is likely the most valuable asset you own, and if you’ve lived there for a while, you probably have equity built up. Whether you need some quick cash to cover a medical emergency or you’re searching for funds to finance a new home purchase, your home may be your best untapped asset.

If you need to know how to get money out of your house without selling, it’s reassuring to know you have options. 

1. Home equity loans

A home equity loan allows homeowners to borrow money by using their home as collateral. You’re effectively borrowing against the amount of equity you have in your home: the amount you own outright, which is calculated by subtracting the amount you owe on your mortgage from the appraised value of your home. 

The amount you can borrow through a home equity loan depends on your equity, along with other factors such as your credit score, income, and debt.

Home equity loans have become a popular option for homeowners looking to get money out of their house without selling or using credit cards with high interest rates. A home equity loan can be a great way to pay for major expenses such as home renovations, medical bills, or college tuition. It’s also one of the cheapest ways to get equity out of your house!

Pros

• Lower interest rates: Home equity loans typically have lower interest rates than credit cards, personal loans, or other types of unsecured loans. 
• Flexible repayment terms: Home equity loans usually have flexible repayment terms, which means you can make monthly payments that fit your budget and financial goals. 
• Tax benefits: The interest paid on a home equity loan is tax-deductible, which means you can write off the interest on your federal income tax return. 

Cons

• Risk of foreclosure: If you are unable to make your monthly payments on the loan, you could risk losing your home through foreclosure.
• Fees and closing costs: Home equity loans often come with fees and closing costs, which can add up to thousands of dollars.
• Additional debt: Taking out a home equity loan will add to your debt load, and you will need to make regular payments on the loan until it’s paid off. 

2. Home equity line of credit (HELOC)

A home equity line of credit (HELOC) is a revolving line of credit that’s secured by the equity in your home. In simple terms, it’s like a high-limit credit card. With a HELOC, you can borrow money up to a predetermined credit limit, with a variable interest rate that will change so long as you have the HELOC open and active. 

If you’re wondering how to pull equity out of your home without doing it in one lump sum, a HELOC is the answer. Many homeowners borrow larger sums from their HELOC to make one-time payments such as down payments on a second house (or your next one, or for home improvements. Then, they pay back the amount little by little each month as they can afford it. Many HELOCs are active through the remaining term of the mortgage. 

Pros

• Lower interest rates: HELOCs typically have lower interest rates than other forms of credit, such as credit cards or personal loans.
• Flexibility: One of the greatest advantages of a HELOC is its flexibility. You can borrow from the line for virtually anything!
• Tax deductions: The interest paid on a HELOC is tax-deductible, but only if the funds are used for home improvement or home renovation projects. 

Cons

• Risk of foreclosure: If you fail to repay your HELOC, you risk losing your home since your home is the collateral for the loan. 
• Variable interest rates: The interest rate on a HELOC is variable and fluctuates. If general interest rates go up, so will yours, increasing your monthly payments.
• Hidden fees: HELOCs often come with fees, such as appraisal fees, origination fees, and annual fees. Know the cost of opening and maintaining a HELOC before opting for one.

3. Cash-out refinance

A cash-out refinance is a type of mortgage that allows homeowners to use their home equity to get a lump sum of money by taking out a new mortgage loan. The loan amount is greater than the remaining mortgage balance, and the difference is paid out to the homeowner in cash. The interest rate on the new mortgage is often lower than credit card rates or personal loans, making it a financially attractive option to get money out of your house without selling.

Each year, many homeowners across the country take advantage of the opportunity for a cash-out refinance. If you’re planning on living in your home for the foreseeable future, it can be a great way to capitalize on any appreciation that’s occurred since you bought it. While your new mortgage loan and monthly payment will be higher, you’ll walk away with a sizable chunk of change that you can invest elsewhere. 

Use a mortgage calculator to see what your monthly payments might look like.

Pros

• Debt consolidation: One of the main reasons homeowners consider cash-out refinancing is to consolidate high-interest debt into a lower rate mortgage. 
• Home improvement: Many homeowners use a cash-out refinance to fund significant and costly home improvements or upgrades that can increase the home's value.
• Access to cash: A cash-out refinance allows homeowners to access home equity and use the money to invest in something that can generate an outsized return.

Cons

• Higher interest: Essentially, you're restarting the clock on your mortgage, meaning that you could potentially pay more interest over the life of the loan.
• High closing costs: Cash-out refinancing comes with closing costs, which can be a significant expense. Closing costs can add up to thousands of dollars.
• Risk of foreclosure: A cash-out refinance loan is a secured loan, which means that if you default on the loan, you could lose your home.

What can you do with home equity now that you’ve taken it out?

Once you've taken out equity from your home, you can use the funds for a variety of purposes.  Many people commonly use the money to finance home renovations or repairs, but you can also use it towards debt consolidation, a business venture, or medical bills. There are no restrictions as to how you can use the home equity, so you can think of it as a personal loan — just keep in mind that you have to pay it back. 

Examples of how to use home equity funds:

• Buy another house before you sell your old one
• Home renovations or repairs
• Consolidating and paying off your debt 
• Paying for education expenses
• Financing a business venture
• Covering unexpected expenses, such as medical bills or emergency repairs
• Making a down payment on a second property
• Investing in the stock market or other financial opportunities
• Saving for retirement or other long-term goals
• Funding a vacation or other leisure activities

Is pulling equity out of your house a good idea?

Now that you understand how to get money out of your house without selling, you can feel the confidence that comes with knowing you have options to get the funds you need, when you need them. You won't have to worry about selling your house to turn your equity into cash. Instead, choose between a cash-out refinance, HELOC, or home equity loan to meet your financial goals. 

The decision to pull equity out of a house is a personal one that depends on a variety of factors, including the homeowner's financial situation, goals, and risk tolerance. Pulling equity out of a house can be a good idea if the funds are used for a worthwhile purpose, such as home improvements or debt consolidation, and if the homeowner is able to comfortably repay the loan or line of credit over time. 

However, pulling equity out of a house can also be a risky decision, as it increases the amount of debt secured against the property and reduces the homeowner's equity. Homeowners should carefully evaluate the risks and rewards of pulling equity out of a house before making a decision. Additionally, it's important to consult with a financial advisor or mortgage lender to explore all options and to ensure that the decision aligns with the homeowner's overall financial goals and strategy.

By evaluating the benefits of each strategy, you can find the option that works best for you and get the funds you need at a rate that aligns with your financial goals. Research your options and don’t hesitate to turn to a trusted financial advisor or mortgage expert to get an in-depth look at the option that works best for you.

Related: What to do if your mortgage is underwater

FAQs

Here are a few more questions about pulling equity out of your house.

What is equity in a home?

Equity in a home is the difference between the current market value of the property and the outstanding balance of any mortgages or loans secured against it. 

How can I pull equity out of my home?

 There are a few different  ways to pull equity out of a home, including taking out a home equity loan or line of credit, refinancing the existing mortgage, or selling the property. Homeowners should consider the costs and benefits of each option and consult with a financial advisor or mortgage lender before making a decision.

Can I pull equity out of my home if I have bad credit?

 It may be more difficult to pull equity out of a home with bad credit, as lenders may be less willing to offer loans or lines of credit. However, some lenders may offer subprime loans or other options for borrowers with lower credit scores. Homeowners should consult with a mortgage lender to explore their options.

At what point can you pull equity out of your home?

Homeowners can typically pull equity out of their home at any time, as long as they have built sufficient equity and meet the mortgage lender's requirements. However, some lenders may require you to have owned the property for a certain length of time or to have a minimum amount of equity before they can apply for a home equity loan or line of credit.

What are the risks of pulling equity out of my home?

Pulling equity out of a home can be a risky financial decision, as it increases the amount of debt secured against the property and reduces the homeowner's equity. If you’re unable to repay the loan or line of credit, you run the risk of foreclosure. Additionally, taking on additional debt can impact your credit score.