How Homeowners Can Access Cash Without Selling Their Home

A home is more than a place to live. It’s also one of their most important financial assets for many homeowners.

Unlike money in a checking account, homeowners can’t easily withdraw funds from an ATM to access the value they’ve built in their homes. If a homeowner needs cash, they might consider selling their home to unlock that value, but they don’t need to do so.

Homeowners can also borrow against their home while continuing to own and live in their property. Here’s how homeowners can access cash without selling their home.

What is home equity?

Home equity is the difference between a home’s current value and any money owed on a mortgage or other loans secured against the home.

For example, if someone owns a home worth $400,000 and has an outstanding $250,000 mortgage balance, the homeowner has about $150,000 in home equity.

Home equity can grow as someone pays down their mortgage or if their home’s value increases.

How can homeowners access home equity?

Homeowners can access their home equity by borrowing against their home. Some common options include a home equity loan, a home equity line of credit or a cash-out refinance.

Home equity loan

A home equity loan provides a one-time lump sum often with a fixed rate, fixed monthly payment and a fixed repayment term. The loan is secured by the borrower's home.

Home equity line of credit

A home equity line of credit, or HELOC, is a revolving line of credit backed by a borrower’s home. It often offers a variable interest rate.

Unlike a home equity loan, a borrower doesn’t receive a one-time distribution of funds. A lender generally approves a homeowner for a credit limit with a HELOC. A homeowner can then draw what they need against the revolving line, repay it and draw again during the draw period.

Cash-out refinance

A cash-out refinance replaces an existing first-position mortgage with a new, larger mortgage.

The difference between the new loan amount and the remaining mortgage balance is paid to the homeowner in cash.

A cash-out refinance is a new mortgage that replaces the terms of an existing mortgage. Homeowners who prefer the terms of their existing mortgage may not want to choose a cash-out refinance and might want to choose a home equity loan or home equity line of credit instead.

What can home equity be used for?

Homeowners can use home equity for large expenses, such as home improvements and renovations, education expenses, medical expenses, business investments and debt consolidation.

Home equity loans, home equity lines of credit and cash-out refinances are secured by a borrower’s home, and, as a result, lenders view these loans as less risky than unsecured personal loans or credit cards, where they do not have collateral.

Home equity loans, home equity lines of credit and cash-out refinance loans may have lower rates or more competitive terms because of the lower risk for the lender.

What are the benefits of borrowing against your home instead of selling it?

The main benefit for homeowners is the ability to maintain ownership of their property.

Borrowing against home equity allows a homeowner to continue to own and live in the home. They can access cash without moving or changing their homeownership plans.

What should homeowners consider before using home equity?

Homeowners should understand that borrowing against their home can be risky. If they can’t pay back the loan, they could lose their home in a foreclosure. Home equity loans, home equity lines of credit and cash-out refinances use a borrower’s home as collateral.

Before borrowing, review and compare APRs, fees, repayment terms and borrowing limits. It’s important to understand more than headline interest rates, as the total cost of borrowing is more than an interest rate.

The bottom line

Homeowners don’t have to sell their homes to access the wealth that they’ve built in their homes. Home equity loans, home equity lines of credit and cash-out refinance loans allow homeowners to tap into their home equity while continuing to own their home.

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This post is for informational purposes only and does not provide any financial, investment or tax advice. The information presented may not be suitable for your individual circumstances. Before making any financial decisions, consider consulting a qualified professional who can provide advice based on your specific situation.