You can borrow against the value you've built in your home without selling it. The main choices are a home equity loan (one lump sum, usually at a fixed rate), a home equity line of credit or HELOC (draw as you need it, usually at an adjustable rate), and a cash-out refinance (replace your whole mortgage with a bigger one). Homeowners 62 and older can also look at a reverse mortgage. The right one depends on how much you need, when you need it, the rate on your current mortgage, and how you'd like to pay it back.
A lot of homeowners are sitting on more equity than they've ever had, and on a first mortgage with a rate they'd rather not give up. That combination is why home equity loans and HELOCs have come back.
This page walks through your options for using your equity, how each one works, what it costs, and how to pick. As a mortgage broker, we can compare more than one lender's version of each.
It often makes sense when:
It may not fit when:
You borrow a set amount all at once and pay it back in equal monthly payments over a set term, usually at a fixed rate. It's a second mortgage: your first mortgage stays in place, and the new loan is also secured by your home.
Good for: a single, known expense where you want a predictable payment.
A HELOC works more like a credit card secured by your home. You get a credit limit. During the draw period, you borrow what you need, when you need it, and pay interest only on what you've used. Then comes the repayment period, when you can't draw anymore and you pay back the balance.
HELOC rates are usually adjustable, so your payment can change. Some lenders let you lock part of the balance at a fixed rate.
Good for: ongoing or uncertain expenses, like a remodel paid in stages.
Watch for: the jump in payment when the draw period ends, and the fact that a lender can freeze or reduce your line in certain cases (more below).
A cash-out refinance replaces your current mortgage with a new, larger one, and you receive the difference in cash. You end up with one loan and one payment.
Good for: when today's rates are close to or better than your current rate, or when you want everything in one fixed payment.
Watch for: giving up a low first-mortgage rate on your entire balance just to get cash. See Refinance.
If you're 62 or older, a reverse mortgage lets you use your equity with no required monthly mortgage payments. You must continue to pay property taxes and homeowners insurance, maintain the home, and meet the other loan terms. Any existing mortgage is paid off from the loan, and you can take the money as a lump sum, monthly payments, or a line of credit.
Upfront costs are higher, so it fits best when you plan to stay in your home for years. See Reverse Mortgages and HECM vs. HELOC.
Yes, in certain situations. Federal rules let a HELOC lender freeze your line or lower your limit if your home's value drops significantly below where it was when you opened the line, or if your finances change in a material way. That happened to a lot of homeowners in 2008.
It's not common in a normal market, but it's why I don't recommend counting on a HELOC as your only emergency fund. If you're 62 or older and want a line that can't be frozen as long as you meet the loan terms, a HECM line of credit is worth comparing.
Lenders look at your combined loan-to-value, or CLTV: your current mortgage plus the new loan, compared with your home's value. Each lender and program sets its own maximum, and those limits change, so we'll show you the current numbers for your situation.
Here's a simple way to think about it. Take your home's value, multiply by the lender's maximum percentage, then subtract what you still owe. What's left is roughly the most you could borrow, before your income and credit are considered.
Costs vary by lender and product. They can include:
You'll get a written estimate before you commit. Some home equity products have lower upfront costs than a refinance, which is one reason they're popular for smaller amounts.
Interest on home equity debt may be deductible only if you use the money to buy, build, or substantially improve the home that secures the loan, under current federal tax law. Using it to pay off credit cards or buy a car generally doesn't qualify. Ask your tax advisor.
Availability depends on the state, because our lenders approve these products state by state.
Texas has its own rules for home equity loans on a homestead, including limits on how much you can borrow and required waiting periods. We offer fixed home equity loans in Texas, but not HELOCs. We'll walk you through the rules if your home is in Texas. See ZYNG Mortgage in Texas.
On a home equity loan or HELOC on your primary residence, and on many refinances, you generally have 3 business days after closing to change your mind. The money is released after that period ends.
A home equity loan gives you one lump sum with a fixed payment. A HELOC gives you a line you draw from as needed, usually with an adjustable rate.
If you like your current mortgage rate, a HELOC or home equity loan keeps it. If today's rates are close to or better than yours, a cash-out refinance may make sense. We'll run both.
No. It's a second loan. Your first mortgage stays in place.
Usually yes. Some lenders charge a fee if you close the line within the first few years. We'll tell you before you sign.
It depends on the lender and whether an appraisal is needed. We'll give you a timeline up front.
It depends on whether you want a monthly payment, how long you'll stay, and whether you want a line that can't be frozen. Read HECM vs. HELOC and we'll compare them for you.
Tell us what you need the money for and how you'd like to pay it back. We'll compare a home equity loan, a HELOC, and a cash-out refinance side by side. Get a rate quote, book a call, or call us at 530-888-6000.
