Yes, if you have equity in your home, you can borrow more money on your mortgage. Homeowners generally have three ways to do it: a cash-out refinance, a home equity loan, or a home equity line of credit. Most conventional lenders cap the total debt against the property at 80% of its appraised value, so how much you can actually pull out depends on what the home is worth today and what you still owe.
How Much Equity Can You Tap
The math is simple. Take 80% of your home’s current appraised value, then subtract your existing mortgage balance. What’s left is roughly the maximum you can borrow.
On a home appraised at $500,000, the most conventional lenders will allow in total mortgage debt is $400,000. If you still owe $250,000, up to $150,000 is available through any of the three options below.1Fannie Mae. Eligibility Matrix
That 80% combined loan-to-value ceiling is the standard for conforming loans delivered to Fannie Mae. Some lenders will go higher, but you’ll usually pay private mortgage insurance once total debt crosses 80%, and the interest rate goes up too.
Government-backed programs set their own limits. FHA cash-out refinances also stop at 80% LTV but tend to accept lower credit scores. VA cash-out refinances are the exception: eligible veterans can borrow up to 100% of the home’s value, though most lenders cap it around 90% in practice.
The Three Ways to Borrow
Cash-Out Refinance
A cash-out refinance replaces your existing mortgage with a new, larger one. The lender pays off the old balance and hands you the difference in cash. You end up with a single monthly payment, a new interest rate, and a fresh repayment term, usually 15 or 30 years. Fannie Mae caps the loan-to-value ratio at 80% for a single-unit primary residence on this type of loan.1Fannie Mae. Eligibility Matrix
The catch is the interest rate on the entire balance. If you originally financed at 3.5% and rates today are near 7%, every dollar of your existing debt now costs roughly twice as much in interest. A cash-out refinance tends to work best when current rates are close to or below your existing rate, or when you need a large lump sum and want everything in one payment.
Home Equity Loan
A home equity loan is a second mortgage sitting behind your first. You take a lump sum at closing and pay it back with fixed monthly payments over a set term, commonly 5 to 20 years. The rate is fixed, so the payment doesn’t move. Your original mortgage stays right where it is, at the rate you already have. That’s the main reason to pick this over a cash-out refinance when rates have climbed since you bought.
The trade-off: two mortgage payments each month, and a higher rate than a first mortgage carries, because the second-lien lender is behind the first in a foreclosure.
Home Equity Line of Credit
A HELOC works like a credit card secured by your house. The lender approves a limit, and you draw against it as needed during a draw period that typically runs up to 10 years. During that window you pay interest only on what you’ve actually borrowed. When the draw period ends, a repayment period begins (often up to 20 years) where you pay principal plus interest and can no longer borrow.
HELOCs carry variable rates tied to prime, so payments move when rates move. The bigger shock for many borrowers comes at the end of the draw period: interest-only payments switch to fully amortizing ones on whatever balance is left. If you’ve carried a big balance, the new payment can be a lot larger.
What It Takes to Qualify
The minimum credit score for most conventional equity-based products is 620.2Fannie Mae. General Requirements for Credit Scores That gets you approved, not the best rate. Borrowers above 740 see noticeably lower rates, and over 15 or 30 years the difference runs into tens of thousands of dollars.
Your debt-to-income ratio matters too. Fannie Mae allows up to 50% DTI for loans run through its automated underwriting system. For manually underwritten loans, the baseline cap is 36%, stretching to 45% with strong credit and cash reserves.3Fannie Mae. Debt-to-Income Ratios A lower ratio gives you more room to negotiate on rate and terms. Pushing 50% and lenders will offset the risk with a higher rate or extra reserve requirements.
One timing rule catches some borrowers off guard. For a conventional cash-out refinance, Fannie Mae requires at least one borrower to have been on the title for six months before the new loan closes. Inherited property and property received through a divorce decree are exceptions.4Fannie Mae. Cash-Out Refinance Transactions You can’t buy a house and immediately pull cash out of it.
Self-employed borrowers face a heavier documentation load. Lenders typically ask for two years of business tax returns (including Schedules K-1, 1120, and 1120S as applicable), a year-to-date profit and loss statement, and a balance sheet, on top of personal returns. They’re looking for stable or growing income across both years; a sharp year-over-year drop raises flags even when current income looks fine.5Freddie Mac. Qualifying for a Mortgage When You’re Self-Employed
What It Costs Upfront
None of these options are free. Every one carries upfront costs that shrink the money you actually walk away with.
On a cash-out refinance, total closing costs typically run 3% to 6% of the new loan amount.6Freddie Mac. Costs of Refinancing On a $300,000 loan that’s $9,000 to $18,000 before you see a dollar of cash. The bill covers the appraisal, title search, title insurance, origination fees, and recording fees.
Home equity loans generally run 2% to 5% of the loan amount in closing costs. HELOCs often have lower upfront costs, and some lenders advertise no-closing-cost HELOCs, though they usually recover those costs through a slightly higher rate or an annual fee.
The appraisal alone is a few hundred dollars. An appraiser looks at the home’s condition, size, and recent comparable sales, then produces the report that sets your maximum borrowing power. If the value comes in low, your available equity shrinks with it and you may qualify for less than you planned on.
Is the Interest Tax-Deductible
Only if you use the borrowed money to buy, build, or substantially improve the home securing the loan. A HELOC used to remodel your kitchen qualifies. A HELOC used to pay off credit cards or take a trip does not.7Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction
When the money does qualify, the debt is treated as home acquisition debt and falls under these limits:
- Mortgages taken out after December 15, 2017: interest is deductible on up to $750,000 of total acquisition debt ($375,000 if married filing separately).
- Mortgages taken out before that date: the older $1 million limit applies ($500,000 if married filing separately).
These caps cover the combined total of your first mortgage plus any home equity borrowing used for improvements. If your first mortgage already uses most of the $750,000 room, only what’s left applies to the new loan. Keep records of how the money was spent; the IRS may ask for proof that it went to qualifying improvements.7Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction
The Risks Worth Knowing
Every dollar you borrow this way is secured by the house. Miss enough payments on a home equity loan or HELOC and the lender can foreclose, even when you’re current on the first mortgage.8Federal Trade Commission. Home Equity Loans and Home Equity Lines of Credit That’s the core difference between borrowing against your home and taking an unsecured personal loan.
A downturn in home prices can leave you underwater, owing more than the property is worth. Borrow to the 80% ceiling and then watch values drop 15%, and you have negative equity with no clean way to sell without bringing cash to closing. This is what caught homeowners who tapped equity aggressively before 2008.
HELOC borrowers face a specific timing risk. Interest-only payments during the draw period feel manageable. When the repayment period starts and principal is added in, the jump can strain a budget that seemed comfortable before. If you’re planning to carry a large balance for years, run the fully amortizing number before you sign the paperwork.