Alternatives to a home equity loan

There are other borrowing options for using (or not using) your home equity

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Home equity loans let you borrow against the equity you have in a property without having to make changes to the primary mortgage. These loans come with fixed interest rates and predictable monthly payments that do not change, and they also come with a set repayment term you know about and agree to ahead of time.

However, home equity loans require borrowers to have considerable equity in a property, and they won't work for everyone. While some lenders make it possible to borrow up to 95% of a home's value with a primary mortgage and a home equity loan, others limit total borrowing to up to 80% of a home's value.

Home equity loans also require borrowers to use their property as collateral for the loan, which means the home is at risk of foreclosure if they don't keep up with payments. These are just some of the reasons to consider home equity alternatives if you need to borrow money.

Key insights

Home equity and collateral requirements are some of the reasons people consider alternatives to home equity loans when they need to borrow money.

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Popular borrowing options to consider instead of home equity loans include personal loans, home equity sharing agreements and home sale-leasebacks.

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A mortgage refinance can also make sense in certain situations, or you can borrow with the help of a reverse mortgage if you're aged 62 or older.

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Home equity line of credit

Home equity lines of credit (HELOCs) also require borrowers to use the equity in their homes as collateral. However, home equity lines of credit work as a line of credit borrowers can tap into as needed, and they typically come with variable interest rates that can change based on market conditions. Because HELOCs let borrowers access as much money as they need (up to approved limits), monthly payments for this borrowing option can vary, too.

While repayment terms for HELOCs can be different from one loan to the next, most have a draw period (usually 10 to 15 years) and a repayment-only period of 15 or 20 years. This is worth noting since you can only borrow against the line of credit during the draw period, but you can wind up with payments that last for up to twice as long.


  • Borrow money as you need it (instead of a lump sum)
  • Potential for competitive interest rates
  • Interest can be tax-deductible if funds are used for home renovations


  • Variable interest rates
  • Unpredictable monthly payments
  • Requires you to use your home as collateral

Cash-out refinance

A cash-out refinance is another option to consider if you want to access equity in your home. Personal finance expert Robert Farrington of The College Investor said this home borrowing option involves getting a new mortgage for a higher amount than your existing mortgage, except for one main difference – "You'll get paid that difference in cash," he said.

As an example, say you owe $200,000 on a home that's currently worth $600,000. In that scenario, you could take out a home mortgage for $300,000 with a cash-out refinance and get $100,000 back at closing (minus fees and closing costs that apply).


  • Access a lump sum of money
  • Have just one housing payment after the refinance
  • Lock in a fixed monthly payment and interest rate with the new loan


  • Potential for higher interest rate based on current market conditions
  • Potential for increased monthly housing payment
  • Borrowing is typically limited to 80% of a home's value with cash-out refinance

Reverse mortgage

A reverse mortgage lets homeowners aged 62 and older borrow against their home equity and receive a lump sum of money or monthly payments. These loans also require borrowers to use their home as collateral for the loan, although the title of the home stays with the homeowner.

Reverse mortgage loans are geared toward older homeowners who have a lot of home equity but need more cash for living expenses. They let homeowners borrow against their home's value and access money they can spend how they want without having to move.

According to the Federal Trade Commission (FTC), the reverse mortgage must be repaid when you die or move out of the home. This usually requires you or your heirs to sell the property.


  • Access home equity without having to move
  • Have more cash for living expenses
  • Money received from reverse mortgages is not considered taxable income


  • Must be at least 62 years old and have considerable home equity
  • Fees and interest charges add to your balance
  • Your heirs may not inherit any value from your property if you use up the home equity

Home equity sharing agreement

According to Farrington, home equity sharing agreements are one of the newest vehicles to tap equity in a home. These are not loans, however. Farrington pointed out that home equity sharing agreements are contracts that state you'll share the future equity of your property with the company you signed with.

Potential benefits of these agreements is that you can access the equity in your home without facing new monthly payments. "And if the value of your home drops, the company will also share in some of the risk," said Farrington.

There are downsides if the value of your home rises significantly during the agreement. In that case, you may pay more in fees for the amount you borrowed than you would have with a traditional loan product. Farrington also pointed out that many of the home equity sharing companies have a contract period of 10 to 15 years, after which you either need to sell, refinance or buy them out of their contract.

"This could force you to make a financial decision you’re not prepared for," he said.


  • Receive a lump sum of money
  • No monthly payments or interest
  • Company shares in the potential for gain or losses
  • Easier credit qualifications than other loan types


  • Overall fees can be very high compared to other loan types
  • Potential for a balloon payment at the end of the agreement term
  • Terms and requirements vary and can be strict
  • Not available in all states

Home sale-leaseback

Home sale-leasebacks are another newer borrowing option when it comes to accessing home equity. Essentially, these agreements come from companies that purchase your home and lease it back to you.

Homeowners who opt for a home sale-leaseback get access to a lump sum of cash and can continue living in their home without owning it. These agreements also give homeowners the chance to sell their home without dealing with showings or uncertainty.


  • Access all your home equity without having to move
  • Lock in fair market rent for the property
  • Move when you're ready


  • Potential for capital gains taxes in situations where considerable home equity is accessed
  • Lose access to future home equity that accrues
  • Closing costs and other charges apply

Personal loan

Personal loans are similar to home equity loans in that they come with fixed interest rates, fixed monthly payments and set repayment terms. However, personal loans are unsecured loans with no collateral requirement, meaning you do not use your home equity as collateral when you apply.

Personal loan rates can also be competitive, although they tend to be more so for people with high incomes and very good to excellent credit. Repayment terms for personal loans can last up to 144 months and longer with some loan companies, and loan amounts can be limited to $35,000, $50,000 or even $100,000 depending on the lender.


  • No requirement for collateral
  • Predictable monthly payments
  • Fixed interest rates
  • Fewer hoops to jump through to get funding


  • Origination fees can apply
  • Best rates and terms are for good or excellent credit
  • Lower loan limits than some other borrowing options

Personal line of credit

A personal line of credit also lets you borrow money without using your home as collateral. However, a line of credit gives you an amount of money you can access when you need it and as you need it, and typically comes with a variable interest rate.

Lines of credit can have unpredictable monthly payments since you only have to pay back amounts you borrow. However, you only pay interest on amounts you borrow, which can help you limit your costs.


  • Variable interest rates can change over time
  • No collateral requirement
  • Available credit replenishes as you make payments


  • Annual or monthly fees can apply
  • Best rates and terms are for people with good to excellent credit
  • Higher rates than other borrowing options

View rates from leading lenders now.


    What credit score is needed for a home equity loan?

    Credit score requirements for home equity loans vary by lender. However, most companies that offer home equity loans want to see a credit score of 680 or higher.

    Does a home equity loan change your mortgage terms?

    A home equity loan is entirely separate from your primary mortgage. As a result, these loans do not change any of the terms or conditions on your current home loan.

    How much equity do you need to get a home equity loan?

    Some mortgage lenders let you borrow up to 95% of a home's value with a primary mortgage and a home equity loan, whereas others limit total borrowing to up to 80% of a home's value.

    Bottom line

    Home equity loans let you access a lump sum of money using your home's equity as collateral, but there are other alternatives to consider if you need to borrow money. Some let you access money without using your home as collateral at all, whereas others rely on your home equity but under different terms and conditions altogether.

    Our advice? Compare home equity loan costs and borrowing caps to what you could accomplish with other loan options. Once you compare how much money you can access and how much it will cost you with all available options, you can make an informed decision.

    Article sources
    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
    1. Indiana Members Credit Union, "Home Equity Loans." Accessed Feb. 26, 2024.
    2. Federal Trade Commission, "Home Equity Loans and Home Equity Lines of Credit." Accessed Feb. 26, 2024.
    3. Consumer Financial Protection Bureau, "Can anyone take out a reverse mortgage loan?" Accessed Feb. 26, 2024.
    4. Freddie Mac, "Cash-out Refinance." Accessed Feb. 26, 2024.
    5. Discover, "How home equity loans work: Rates, terms and repayment." Accessed Feb. 26, 2024.
    6. Citizens Bank, "How to pay off your home equity line of credit early." Accessed Feb. 26, 2024.
    7. IRS, "Is interest paid on a home equity loan or a home equity line of credit (HELOC) deductible?" Accessed Feb. 26, 2024.
    8. Rocket Mortgage, "Cash-Out Refinance: Rates And Guide For Homeowners." Accessed Feb. 26, 2024.
    9. Federal Trade Commission, "Reverse Mortgages." Accessed Feb. 26, 2024.
    10. Unison, "How It Works." Accessed Feb. 26, 2024.
    11., "Are Leaseback Programs a Good Idea for Sellers in This Market?" Accessed Feb. 26, 2024.
    12. Truehold, "Sale and Leaseback Advantages and Disadvantages: What Every Homeowner Should Know." Accessed Feb. 26, 2024.
    13. Consumer Financial Protection Bureau, "What is a personal installment loan?" Accessed Feb. 26, 2024.
    14. U.S. Bank, "Personal line of credit." Accessed Feb. 26, 2024.
    15. U.S. Bank, "Pros and cons of a personal line of credit: Here's what you should know." Accessed Feb. 26, 2024.
    16. Experian, "What Credit Score Do I Need to Get a Home Equity Loan?" Accessed Feb. 26, 2024.
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