If you want to pull equity out of your home, you have four main routes: a home equity loan, a home equity line of credit (HELOC), a cash-out refinance, or, if you’re at least 62, a reverse mortgage. Most lenders will let you borrow against up to 80 percent of your home’s value minus what you still owe on it. Which route fits depends on how you want to receive the money, whether you can handle a variable rate, and what you plan to do with the cash.
How Much You Can Actually Borrow
Lenders measure your borrowing capacity through loan-to-value, or LTV: your total mortgage debt divided by the home’s appraised value. For a standard cash-out refinance on a single-unit primary residence, Fannie Mae caps LTV at 80 percent.1Fannie Mae. Eligibility Matrix On a $500,000 home, that generally means total debt after the new loan can’t exceed $400,000. Some products stretch a bit higher, but 80 percent is the common ceiling across equity products.
Two other numbers matter. Many lenders use a debt-to-income guideline around 43 percent, and most look for a FICO score of at least 620 to 680 for home equity products, though requirements vary. You’ll also pay for a professional appraisal up front, usually several hundred dollars. If the appraised value comes in low, your borrowing power shrinks with it. You can ask for a reconsideration of value with better comparable sales, or accept a smaller loan.
Home Equity Loan
A home equity loan hands you a single lump sum at closing, secured by a second lien behind your existing mortgage.2Fannie Mae. B2-1.2-04, Subordinate Financing You repay it in fixed monthly installments at a fixed rate, generally over five to thirty years. Your original mortgage stays in place, so you’ll have two housing payments instead of one.
Rates on home equity loans averaged around 6.95 percent in early 2026, with your actual rate shaped by credit, LTV, and loan size. The fixed structure works well for a defined one-time expense: a renovation with a known price tag, or consolidating a specific balance of higher-rate debt.
Home Equity Line of Credit
A HELOC behaves more like a credit card. You get a revolving line up to an approved limit and draw funds as you need them.3Citizens Bank. Understanding a HELOC: Draw vs. Repayment Period The draw period typically runs ten years, during which you pay interest only on what you’ve actually borrowed. Then the line enters a repayment phase where you pay down principal and interest over a set number of years.
Most HELOCs carry variable rates tied to a benchmark like the prime rate, so your payment moves with the market. HELOC rates averaged about 7.11 percent in early 2026. The flexibility fits ongoing or irregular spending, like a phased renovation, better than a lump sum would.
Your Lender Can Freeze the Line
Federal rules let your lender freeze or reduce a HELOC in three situations: a significant drop in your home’s value below the appraisal at opening, a reasonable belief that your financial situation has materially changed, or a default on a material obligation under the agreement. The freeze is meant to be temporary; once the triggering condition ends, the lender must restore your access.4Consumer Financial Protection Bureau. Section 1026.40 Requirements for Home Equity Plans Practically, an unused HELOC balance isn’t the same as guaranteed cash, so don’t build a plan around it without a backup.
Cash-Out Refinance
A cash-out refinance replaces your existing mortgage with a new, larger one. The lender pays off the old balance and gives you the difference as cash. You come out with a single mortgage payment rather than two.
For a single-unit primary residence, Fannie Mae allows a maximum LTV of 80 percent on a cash-out refinance, dropping to 75 percent for multi-unit properties.1Fannie Mae. Eligibility Matrix This route makes the most sense when current rates sit below your existing mortgage rate, because you’re resetting the entire loan. If rates are higher than what you already have, you’ll pay more interest on the full balance for the remaining term, not just on the cash you pulled out.
Closing Costs and the Break-Even
Closing costs on a cash-out refinance typically run 2 to 6 percent of the new loan amount. On a $300,000 loan, that’s $6,000 to $18,000 for the appraisal, title search, lender origination charges, and recording fees. You can roll these into the balance, but that raises the amount you owe and the interest you’ll pay. Home equity loans and HELOCs often have lower upfront fees, so factor closing costs into the comparison before you decide.
Reverse Mortgage (HECM)
If you’re 62 or older, a Home Equity Conversion Mortgage lets you tap equity without monthly payments. HECMs are insured by the Federal Housing Administration.5eCFR. 24 CFR Part 206 – Home Equity Conversion Mortgage Insurance You can take the money as a lump sum, a line of credit, monthly payments, or a mix. The property has to be your primary residence.
The balance grows over time as interest and insurance premiums accrue. Repayment is triggered when the last surviving borrower dies, sells the home, or moves out for more than twelve consecutive months.5eCFR. 24 CFR Part 206 – Home Equity Conversion Mortgage Insurance For 2026, the maximum claim amount is $1,249,125, which caps how much of your home’s value counts toward the loan calculation.6HUD. HUD’s Federal Housing Administration Announces 2026 Loan Limits
Mandatory Counseling
Before closing on a HECM, you have to complete a session with a HUD-approved counselor.7eCFR. 24 CFR 206.41 – Counseling The counselor walks through how the product works, what alternatives exist, and the obligations you’ll still carry: property taxes, homeowners insurance, and maintenance. You get a certificate afterward that the lender needs before the loan can proceed. Any non-borrowing spouse and any non-borrowing owner on the title has to attend too.
Non-Borrowing Spouse Protections
If only one spouse is on the HECM and that spouse dies, the surviving spouse can often stay in the home under a deferral period rather than facing immediate repayment. The surviving spouse must have been married to the borrower at closing, named in the HECM documents, and must continue living in the home as a primary residence while keeping current on taxes, insurance, and maintenance. No new draws are allowed during the deferral, but the loan isn’t called due as long as those conditions hold.
What’s Deductible and What Isn’t
Interest on home equity debt is deductible only if you used the money to buy, build, or substantially improve the home securing the loan.8Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction Use the funds to pay off credit cards, cover medical bills, or take a trip, and none of the interest is deductible. This limit came out of the 2017 Tax Cuts and Jobs Act and was made permanent in 2025 legislation.
Even for qualifying uses, there’s a ceiling. You can deduct interest on up to $750,000 of total mortgage debt across your primary and secondary residences combined, or $375,000 if married filing separately.8Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction That cap includes the first mortgage. If you already owe $600,000 on your primary mortgage and take a $200,000 home equity loan for a renovation, only the interest on the first $150,000 of the equity loan may be deductible.
You also have to itemize on Schedule A to claim it.9Internal Revenue Service. Real Estate (Taxes, Mortgage Interest, Points, Other Property Expenses) For many households, the standard deduction is high enough that itemizing doesn’t pay off, which quietly takes the interest deduction off the table as a real factor in the decision.
Risks Worth Taking Seriously
Every option here uses your home as collateral. Miss enough payments and the lender can foreclose, even on a second mortgage or a HELOC. A junior lienholder can start foreclosure independently of your first mortgage lender, though it often doesn’t pencil out unless the home is worth enough to cover both debts. The legal right exists either way.
Falling values are the other big exposure. If your home’s market value drops below what you owe across all liens, you’re underwater and can’t easily sell or refinance without bringing cash to closing. Borrowing to the maximum LTV leaves no cushion. Staying well below the cap gives you room to absorb a downturn.
Cash-out refinancing carries a timing trap. Resetting the clock on a 30-year mortgage ten years into your original loan adds a decade of payments, and you’re paying interest on the full new balance, not just the cash extracted. Run the comparison over the full loan term, not just the monthly payment.
The Timeline From Application to Funding
Most lenders use the Uniform Residential Loan Application (Fannie Mae Form 1003) and will ask for recent pay stubs, two years of tax returns, W-2s, and bank statements.10Fannie Mae. Instructions for Completing Uniform Residential Loan Application They’ll order an appraisal, pull credit, verify income, and run a title search.
After you sign, federal law gives you a three-business-day right of rescission on most home equity transactions. You can cancel without penalty during that window.11Office of the Law Revision Counsel. 15 USC 1635 – Right of Rescission as to Certain Transactions Rescission applies to home equity loans, HELOCs, cash-out refinances, and reverse mortgages, but not to the original purchase mortgage. If you refinance with the same lender, the rescission right applies only to the portion of the new loan that exceeds your existing balance and refinancing costs.12Consumer Financial Protection Bureau. Section 1026.23 Right of Rescission
Funds are released after the rescission period ends, usually by wire or certified check. Plan on 30 to 45 days from application to funding once appraisal, title, underwriting, and the cooling-off period are accounted for.
A Word on Home Equity Contracts
Some companies offer home equity contracts, also called home equity investments or shared equity agreements, as a no-monthly-payment alternative. Rather than borrowing, you sell a share of your home’s future value for a lump sum today. There’s no interest and no monthly bill, but the effective cost can be sharp.
The Consumer Financial Protection Bureau has raised concerns. The amount you owe at the end of the contract term, typically 10 to 30 years or when you sell, is tied to appreciation and can grow at an effective rate of 19.5 to 22 percent per year in the early years, well above most home-secured credit.13Consumer Financial Protection Bureau. Issue Spotlight: Home Equity Contracts: Market Overview In one CFPB comparison, the ten-year total cost of a home equity contract ranged from about $94,000 to over $215,000, while a comparable HELOC came in around $95,000. These products are often marketed to homeowners with lower credit scores or limited income who don’t qualify for traditional equity products, which makes the long-term math worth working through carefully before signing.