4 ways to pull cash out of your home without refinancing

With mortgage rates still above 6%, many homeowners are asking the same question: can you pull equity out of your home without refinancing? If you locked in a low interest rate on your home loan years ago, a cash-out refinance could mean trading it for a much higher monthly payment—something you probably want to avoid.

In fact, 57% of homeowners who recently used a cash-out refinance took on a higher mortgage rate, with those homeowners seeing an average increase of 2.25 percentage points and $804 in their monthly mortgage payment.

How to get equity out of your home without refinancing

If you’re looking to avoid refinancing, you generally have four main options for tapping into your home equity. Let’s look at a quick comparison, and then we’ll go into each option in more depth:

Home equity loan

A home equity loan is a fixed-rate loan, similar to a personal loan, that provides a lump sum of cash out from your real estate. Since home equity loans have fixed interest rates, you can expect predictable monthly payments.

• Loan amount: Up to 85% of your home’s value, minus your mortgage balance
• Repayment term: 5 to 30 years
• Requirements: 15% to 20% equity, a 620 credit score or higher, a max DTI of 45%, and sufficient income

Home equity line of credit (HELOC)

A HELOC acts like a home equity loan, but it is a revolving line of credit instead of a lump-sum distribution. You can withdraw money throughout the draw period, and are responsible for interest-only payments during this time.

When the draw period ends, the repayment period begins. You can’t borrow any more during the repayment phase, and any remaining balance automatically converts to an amortizing loan.

• Loan amount: Up to 85% of your home’s value, minus your mortgage balance
• Repayment term: 10 to 20 years
• Requirements: 15% to 20% equity, a credit score above 620, a DTI below 45%, and sufficient income

Home equity investment (HEI)

Home equity investments (HEIs) provide access to your home’s equity without the addition of monthly payments. Many homeowners can also qualify without income verification or with lower credit scores than a traditional mortgage. You’ll receive a lump sum of money in exchange for sharing your home’s appreciation—that's change in value, not total home value. You can repay at any time (max term of 30 years), typically through a home sale, refinance, or using another source of funds (like a HELOC).

• Amount: Up to $600,000
• Repayment term: 30 years; no monthly payments
• Requirements: Sufficient equity, a credit score of 500 or above, no income requirements

Reverse mortgage

Reverse mortgages provide a lump sum, line of credit, or a stream of payments to homeowners aged 62 or older. These loans do not require monthly payments, but interest charges continue to accrue and can increase your loan balance. The loan is due when the borrower passes away or no longer lives in the home.

• Loan amount: Varies based on the type of reverse mortgage; can generally access more the older you are
• Repayment term: Repaid when the borrower sells the home or passes away
• Requirements: Aged 62 or older, own at least 50% equity, have sufficient income

Can you pull equity out of your home without refinancing?

You’ll need to consider a few factors to determine whether you’re eligible to tap into your home’s wealth: 

• Check your home equity: Estimate your home’s current market value and subtract what you still owe on your mortgage. Your odds are better if you have at least 15% equity in your home. 
• Review your credit and finances: If possible, increase your credit score before applying. The best opportunities go to applicants with a credit score of 620 or higher.
• Get quotes from lenders or providers: Shop around to compare interest rates, fees, and terms. Look for lenders that offer prequalification, which won’t impact your credit score.
• Apply and prepare documents: Gather pay stubs, tax returns, mortgage statements, and proof of homeownership to streamline the process.

When should you choose each home equity financing option?

It’s not always immediately clear which option is best for you, but here are some general pointers that can help. 

Choose a home equity loan if:

• You want a shorter-term loan
• You want steady, predictable payments
• You want to start regaining equity by making payments right away
• You don’t want the ongoing temptation to borrow more money than you need

Choose a HELOC if:

• You want the option to borrow more as needed
• You want a handy source of funds in case of emergency
• You want the option of making smaller, interest-only payments during the draw phase

Choose an HEI if:

• You don’t want any monthly payments
• You’ll have a plan for paying off the HEI in 30 years’ time
• You want your heirs to have the option of taking over the HEI and keeping your house

Choose a reverse mortgage if:

• You’re 62 or over
• You don’t want to make monthly payments
• You’re prepared to live at home for the foreseeable future
• You’re not as concerned about leaving your home to heirs

Borrowing against your home equity can provide a tremendous advantage, especially if you need a large sum of money for something like upgrading your home or paying down high-interest debt. On the other hand, no matter which method you choose, you’ll need to consider the drawbacks, especially the possibility of losing your home if you don’t repay what you owe. 

If you’re not sure which option is right for you, it’s not a bad idea to chat with a financial advisor or even a nonprofit credit counselor. The potential stakes — and the possible rewards — are high, so it’s worth taking your time in arriving at the right decision for your family.