If you need cash for big costs like renovations, debt consolidation, or other big expenses, it can be tempting to take equity out of your home. You don’t have to refinance into a cash-out mortgage, though. There are other ways to get access to your home equity besides refinancing.
What is Home Equity?
Home equity is the difference between what your home is worth and what you owe on your mortgage. For example if your home is worth $300,000 and you owe $200000 on your mortgage, you have $100,000 in equity. This equity essentially represents the portion of your home that you own outright.
As you pay down your mortgage and as your home value appreciates over time, your equity builds Tapping into this equity can provide funds for major expenses without needing to take out an unsecured loan or rack up high-interest credit card debt
The Downsides of Cash-Out Refinancing
With a cash-out refinance, you get cash from your home’s equity, but you also get a new mortgage. There will be closing costs, a new mortgage term, and most likely a higher interest rate. Also, your equity goes down, and you have less to use for other things in the future.
That’s why it’s smart to look at alternatives before deciding if refinancing makes the most sense.
6 Ways to Access Equity Without Refinancing
Here are six options for pulling cash out of your home without refinancing your existing mortgage:
1. Home Equity Loan (Second Mortgage)
With a home equity loan, you can borrow all of your home’s value at once. It acts as a second mortgage behind your primary mortgage.
Pros:
- Fixed rates and payments
- Simple to understand
- Fast access to funds
Cons:
- Closing costs
- Debt/payment burden
- Foreclosure risk if you default
2. Home Equity Line of Credit (HELOC)
A HELOC provides access to a revolving credit line, similar to a credit card. You can draw what you need up to your limit.
Pros:
- Flexible borrowing
- Interest-only payments
- Low rates
- Interest may be tax deductible
Cons:
- Variable rates
- Discipline to manage payments
- Line could be frozen
3. Home Equity Investment
When you do this, you sell an investor a piece of your equity. This is also known as “shared equity financing.” You get cash without monthly payments or interest.
Pros:
- No monthly payments
- Fixed-term contracts
- Qualify based on equity
Cons:
- Partial loss of equity
- Service fees
- Lower valuation than market value
4. Reverse Mortgage
Reverse mortgages convert equity into cash advances for homeowners 62+. Repayment is deferred until you sell, move out, or pass away.
Pros:
- Tax-free income
- No repayment while living in home
- FHA-insured product
Cons:
- Higher costs
- Depletes equity over time
- Must meet obligations to avoid foreclosure
5. Sale-Leaseback Agreement
You sell your property to an investor, then lease it back and continue living there as the tenant. This unlocks your equity while letting you stay.
Pros:
- Full equity payout
- No need to move
- Bypass credit requirements
Cons:
- Become a renter
- Responsible for maintenance
- Lose future appreciation
6. Personal Loans
Borrow against your home’s equity by using the deed as collateral for a personal loan. This avoids refinancing but offers fixed rates.
Pros:
- Simple process
- Fixed rates
- Quick funding
Cons:
- Higher rates than home equity financing
- Risk of default
How Much Equity Can You Pull Out?
Lenders have limits on how much equity you can tap into with these alternative financing options. Most set the maximum combined loan-to-value ratio between 80-85%.
That means if your home is worth $300,000 and you have $100,000 in equity, you may be able to borrow around $80,000 without refinancing. Always consult with lenders to verify precise amounts.
Which Option Is Right for You?
There are many ways to leverage home equity besides refinancing, each with unique pros and cons. Factors like your credit score, income, loan amount needed, and financial goals help determine the optimal choice.
A few key questions to ask yourself:
- How much money do I need? Lump sum or line of credit?
- What are my plans for repayment?
- How long can I commit to a loan term?
- What rates and fees seem reasonable?
- Am I willing to take on monthly payments?
Thoroughly evaluating your options against your financial situation can lead you to the best home equity solution without refinancing your current mortgage.
Next Steps to Access Your Home Equity
Now that you know the various options to pull equity from your home, here are a few tips as you move forward:
- Get a professional appraisal to verify your home value and equity amount.
- Check your credit score and report for any issues to address.
- Research lenders and compare loan quotes.
- Consult a financial advisor to assess the financial implications.
- Read all loan terms carefully before signing anything.
Unlocking home equity can provide strategic leverage for your financial goals. With prudent planning, you can access those funds without undertaking a costly cash-out mortgage refinance. Just be sure to weigh all alternatives to make the best decision for your situation.
Home equity investments
Home equity investments, also known as home equity agreements (HEAs), offer a unique method for homeowners to tap into their home’s value without taking on additional debt. Through this arrangement, an investor buys a share of the home’s equity, determining the percentage based on the property’s current market price. These agreements typically last from 10 to 30 years, providing a long-term strategy for accessing equity.
Key aspects of home equity investments:
- Debt-free financing: Access your home’s equity without the burden of monthly debt payments.
- Flexible terms: Agreements last between 10 and 30 years, with various exit options like selling or refinancing.
- No monthly or interest payments: This eliminates the stress of monthly payments, though a service fee may be involved.
- Eligibility based on equity: Requires a significant amount of equity, typically allowing for a loan-to-value ratio of 75% to 85%.
Home equity investments are well suited for borrowers who are unable to handle extra monthly payments or those with low credit scores. Unfortunately, it’s often not the cheapest way to get equity out of a house.
A sale-leaseback agreement provides an alternative route to access home equity without refinancing. This arrangement involves selling your home to another entity, allowing you to cash out the full value of your accrued equity, and then leasing your home back from the new owner.
Sale-leaseback agreements let you continue living in your home, paying rent at market value, unlike traditional home sales, which would require you to move out. What’s more, these types of agreements often bypass the credit requirements associated with second mortgages or home equity lines of credit.
Sale-lease drawbacks:
- Ongoing financial obligations: Some agreements might require you to cover costs typically associated with homeownership, such as property taxes and maintenance. However, in some cases, the buyer assumes these responsibilities, including insurance and repair costs.
- Loss of property ownership: Entering a sale-leaseback means you’ll no longer own your home, which means missing out on potential future value increases.
- Monthly rent payments: Although you can unlock a significant amount of equity, the deal converts you into a renter of your own home, which might not be financially advantageous over time for some.
Ultimately, sale-leaseback agreements might not be the most advantageous route unless you find yourself in a situation where immediate liquidity is essential, and your home is your primary or sole asset.
Are you comfortable changing your loan amount and term?
Cash-out refinancing means you’ll have a bigger mortgage and probably a higher payment. You’ll also burn up some home equity, which is an asset just like your 401(k) or bank balance.
This is not something to do lightly.
In addition, taking a cash-out refinance means resetting the clock on your home loan. You pay more over time by adding those extra years and interest to a new mortgage.
The 3 Best Ways to Access Your Home Equity WITHOUT Refinancing
FAQ
Can I use my home equity to get cash without refinancing?
If you want to use your home equity to get cash without refinancing, options include a home equity line of credit (HELOC) or a reverse mortgage. Learn more.
Can you pull equity out of your home without refinancing?
Yes, homeowners can access their home’s equity without refinancing through several options, including home equity loans, home equity lines of credit (HELOCs), shared equity agreements, and home equity investment programs.
Can I get cash out of my home without refinancing?
If you love your mortgage but still want to take advantage of your home equity, you may be wondering if you can get cash out of your home without refinancing. With current mortgage rates above 6%, many homeowners are reluctant to do a cash-out refinance.
Can you refinance a home equity loan?
Unlike a cash-out refinance, home equity loans don’t replace your mortgage, which is beneficial for people who have a low interest rate and don’t want to change it by refinancing. Typically, borrowers have 20 years to repay their home equity loan, but some lenders offer terms of up to 30 years.
How do you get equity out of a house?
When done right, it can be one of the cheapest ways for many homeowners to get equity out of their home. Start by determining your home’s current value and calculate your loan-to-value ratio to evaluate eligibility for a home equity loan or a HELOC.
Is cash-out refinancing right for You?
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.
Can you withdraw equity without refinancing?
Yes, there are options other than refinancing to get equity out of your home. Home equity loans, home equity lines of credit (HELOCs), reverse mortgages, sale-leaseback agreements, and Home Equity Investments are some of these.
Is it a good idea to take equity out of your house?
When should you take out equity from your home? 1) When you need the money and can’t get it anywhere else at a lower interest rate; or 2) When the interest rate on the new mortgage is much lower than the expected return on investment on the amount taken out.
What is the cheapest way to get equity out of your house?
A home equity line of credit, or HELOC, is typically the most inexpensive way to tap into your home’s equity.
How much would a $30,000 home equity loan cost per month?