How to Get Equity Out of Your Home Without Refinancing

The equity in your home is the value of the property after you subtract your remaining mortgage. The more you pay off your home loan, the more your equity grows. However, there are other ways to increase your home equity.

In a seller’s market, your home values might increase, growing your equity without any work on your part. You can also increase your home’s value (and, therefore, equity) by keeping up with maintenance tasks and making property upgrades. 

If you need money, you can potentially tap into your home equity and use it to cover unexpected bills or major expenses (like funding a wedding). However, not everyone wants to go through the refinancing process to pull equity out of their homes. A cash-out refinance can be time-consuming and costly – especially if you end up with a worse interest rate than you currently have. 

Use this guide to learn how to get equity out of your home without refinancing. There are multiple options available depending on your needs and current financial situation.

Can you pull equity out of your home without refinancing?

The first thing to know is that you absolutely can access your home equity without going through the cash-out refinancing process. Some of the most popular options include home equity loans and lines of credit based on the value of your home. These programs are often faster to complete than cash-out refinancing and offer more options when it comes to interest rates and payment plans.

Know that almost any loan option you choose comes with fees and extra costs. Very few lenders are interested in giving you free money for your equity. Carefully read through the terms of the agreement and consider the short-term fees and long-term costs that come with them.

While a loan option might seem like a good idea right now, you might wish you had pursued alternative options in the future when you decide to sell your house.

Ways to take equity out of your home without financing

There are multiple ways to access your home equity and use it to secure loans and financing options. Here are a few channels to consider, along with the potential benefits and drawbacks that come with them.

If you are unsure about any of these options, talk to a personal finance advisor about the best choice for your current needs. They help you make a more informed decision.

1. Home Equity Line of Credit (HELOC)

Lenders recognize that your home is a significant financial asset, which is why they let you use it as collateral to secure credit. With a home equity line of credit, you borrow cash from the value of your home and can take out up to 85% of your home’s value. Here’s how it works:

• Assuming your house is valued at $400,000 and you owe $100,000 in mortgage fees to the bank, you would have $300,000 in home equity. 
• The bank would allow you to take out a HELOC up to $255,000 against the value of your home. 
• You will continue to make your monthly mortgage payments and will eventually also make HELOC payments to return the loan balance to the bank. 

If you own your house outright, you can take out a HELOC for 85% of its value and will repay it as if you are paying back a mortgage. You don’t have to take out the full 85%. This is just a cap to protect lenders.  

Lenders often approve HELOCs to cover home improvements and renovations that can increase the value of the investment. For example, you might get a HELOC to cover the cost of a new roof or to convert the attic into another bedroom.

By the time you pay off your home equity line of credit, your overall home equity has increased.

2. Home Equity Loan

Another option to consider is a home equity loan, which also allows you to borrow against your home’s value. The home equity loan is also known as a mortgage loan or a second mortgage.

After you take out this loan, you will start making payments on the debt back to your lender. HELOCs and home equity loans are similar, but the main difference has to do with your monthly payments. Home equity loans usually have fixed rates, while HELOCs have variable rates. 

A fixed-rate home equity loan is often the better option if you want to make the same monthly payment across your entire repayment period. You can budget for the same fixed monthly payments from the moment you take out your loan until you completely return the outstanding balance.

Conversely, variable interest rates change depending on the market. If interest rates drop, you will have a smaller monthly payment. However, when interest rates rise, your monthly payment increases.

While many people like the stability of a fixed interest rate and the consistent monthly payments that come with a home equity loan, the variable interest rates of HELOCs might be more appealing in some markets. When interest rates are high, a variable rate is viewed as a way to potentially save money in the long run if they drop.  

3. Partial Home Equity Sale

Another option if you want to avoid a cash-out refinance is to sell part of your home to investors in what is known as home equity sharing.

In this case, an investment firm will pay a lump sum for a portion of your home equity. This money also comes with an agreement that your investors receive a portion of the profits as your home appreciates. 

It’s easier to understand this concept using an example: 

• If your home is valued at $400,000, an investment firm might give you a lump sum of $100,000 for their share of the property. They now own 25% of your house. 
• You don’t have to pay this money back until you sell your house when the $100,000 will go back to the investment firm – along with their share of the profits. 
• If you sell your house for $500,000, meaning it has appreciated by $100,000, and the investors get 25% of your profits, then they will receive an additional $25,000. 
• The total division of the sale is $125,000 to your investors and $375,000 to you as the homeowner (before closing costs and Realtor fees). 

If your home loses value, your investors lose their profits as well. This is the risk they take when buying a share of your house. 

While it is possible to choose this route if you are currently paying off a mortgage, you can only sell to investors based on your equity, not the market value of the house.

While this is often seen as a good way to get a lump sum of money that you don’t have to pay back, you might limit your future buying power and profits once you decide to sell your home. 

4. Shared Appreciation Mortgage

If your main concern about a cash-out refinance is that you don’t want to pay a higher interest rate, you might be able to adjust your existing mortgage by switching to a shared appreciation mortgage. This is similar to the home equity sale mentioned earlier. In this case, your lender receives a share of your home’s increased value when it’s time to sell the property. 

With a traditional mortgage, the borrower pays back the loan and collects all of the profit on the home sale. It doesn’t matter to the bank whether the seller gets $20,000 or $200,000 more on their property as long as the mortgage balance is paid off. 

With a shared appreciation mortgage (SAM), the lender receives a percentage of the appreciated value. If you sell your house for $50,000 more than you bought it, the lender might receive $5,000 of that sale. 

In exchange for receiving a share of the profits, the lender will offer a lower interest rate and usually accept a smaller down payment. They are willing to take a risk with the current mortgage because of the potential for higher profits in the future.

Switching to this loan type could be a good option if you have a higher interest rate on your existing mortgage and want to pull out your home’s equity. However, you might have to complete the cash-out refinance process to take on this new mortgage loan. This is also a risk for homeowners who might not know how much profit they stand to lose when they sell their homes.

5. Reverse Mortgage

If you are 62 or older, you might qualify for a reverse mortgage. With this option, you start to sell your house back to the bank over time. You might receive monthly payments from your lender as it continues to purchase your home.

A reverse mortgage isn’t free. The bank charges a variety of fees for homeowners to take on this type of loan. This also reduces your home equity over time. When you decide to sell your house, you will have to pay those fees to the bank. Plus, you will only receive money based on your remaining home equity. This means a reverse mortgage can considerably reduce your profits. 

While a reverse mortgage might be a good option for some people, make sure you completely understand the costs that come with it before you enter into this agreement.

How much cash can you withdraw?

Just like your existing mortgage, there are limits to how much cash you can access through a home equity loan or other lump sum option.

First, your lender will look at how much home equity you actually have. They will subtract your loan balance from the property value to get an idea of your credit. You will likely have to get your home appraised during this process. Once you know your equity, you can see your limit to borrow money against it. 

The next step, in the case of home equity loans at least, is to calculate the monthly payments you can handle. They will look at your existing mortgage and your income levels to track your debt-to-income ratio. Your lender will then make an offer based on your ability to pay interest, origination fees, and the loan principal. 

There might be a period where you only need to pay your primary mortgage before you start making payments on your home equity loan or other form of financing. This period is often set in place for people who need the money to cover gaps in employment to return to school, care for an aging loved one, or take an extended period off work after giving birth. 

The goal is to make sure you aren’t overwhelmed by multiple personal loans. The approval process will allow you to handle your monthly payment on the mortgage and second mortgage without going into debt. 

Use Your Home Equity to Your Advantage

There are multiple ways to tap into your home equity without going through a cash-out refinance. Home equity loans are often one of the most popular options. However, there are other ways to access money from your property. Look into reverse mortgage offers, home equity sales, and HELOCs to see which lending option is right for you. 

If you want to talk to an expert in the field, turn to the real estate agents at FastExpert. You can interview Realtors about their experiences with loan options to help with the decision-making process. Learn more about our services today.