Three Ways to Access Your Equity
| Feature | Cash-Out Refi | Home Equity Loan | HELOC |
|---|---|---|---|
| How it works | Replace your current mortgage with a new, larger one. Keep the difference as cash. | Second mortgage. Lump sum. Fixed rate. Fixed payment. | Revolving credit line secured by your home. Draw as needed. |
| Your existing mortgage | Replaced with new loan | Stays in place | Stays in place |
| How you get cash | Lump sum at closing | Lump sum at closing | Draw anytime during draw period |
| Rate type | Fixed or ARM | Fixed | Variable (usually Prime + margin) |
| Max LTV | 80% conventional, 85% FHA, 90% VA | 80-90% CLTV | 80-90% CLTV |
| Closing costs | Full closing costs (2-5%) | Lower closing costs | Minimal or none |
| Best when | You can also lower your rate OR you need a large amount | You like your current rate and need a fixed amount | You want flexibility to draw over time |
| Tax deductible? | If used for home improvement (consult CPA) | If used for home improvement | If used for home improvement |
Cash-Out Refinance
The most common way to access equity. You refinance your entire mortgage into a new, larger loan and receive the difference in cash at closing. Works for conventional, FHA, VA, and jumbo loans.
- Conventional cash-out: Up to 80% LTV. 620+ credit. Primary, second home, or investment property.
- FHA cash-out: Up to 85% LTV. 580+ credit. Primary residence only. Must have owned 12+ months.
- VA cash-out: Up to 90% LTV. No PMI. Veterans and active duty. Can even refinance a non-VA loan into a VA cash-out.
- Jumbo cash-out: Up to 80% LTV on loan amounts above $766,550.
VA cash-out is the most powerful equity product in America. Up to 90% LTV, no PMI, competitive rates. If you're a veteran sitting on home equity, this is the single best way to access it. Period.
Home Equity Loan (Second Mortgage)
A second mortgage behind your existing first. You keep your current mortgage (and its rate) untouched and take a separate loan against your equity. Fixed rate, fixed payment, lump sum at closing.
- Keep your low first mortgage rate
- Fixed rate and payment — no surprises
- Lump sum for renovations, debt consolidation, or large purchases
- Typically 80-90% combined LTV (first mortgage + equity loan)
- 10-30 year terms available
HELOC (Home Equity Line of Credit)
A revolving credit line secured by your home. Like a credit card backed by your equity. Draw what you need, when you need it, during the draw period (typically 5-10 years). Then repay over the repayment period (10-20 years).
- Only pay interest on what you draw
- Draw period: 5-10 years of flexible access
- Repayment period: 10-20 years after draw period ends
- Variable rate (usually Prime + 0.5-2%)
- Great for ongoing expenses: tuition, medical, home projects over time
- Some lenders offer fixed-rate HELOC options
Best strategy for investors: Use a HELOC on your primary residence as a revolving down payment fund. Draw for the down payment on a rental property, pay it back with rental income, then draw again for the next property. Your equity becomes a self-replenishing investment engine.
What Can You Use the Money For?
- Debt consolidation — Pay off credit cards at 24% with home equity at 7%. Instant savings.
- Home renovations — Kitchen, bathroom, addition, accessibility modifications. Potentially tax-deductible.
- Investment property down payment — Use equity from your home to buy a rental. Your house pays for your next house.
- Medical expenses — Lower rate than any medical financing.
- Education — Often better rates than private student loans.
- Emergency fund — HELOC as a backup you hope you never need.
- Business startup — Fund your venture with the cheapest capital available.
How Much Equity Can You Access?
Quick estimate: take your home's current value, multiply by 80% (or 90% for VA), and subtract your current mortgage balance. That's roughly how much cash you can pull.
Example: Home worth $400,000 × 80% = $320,000 − $200,000 mortgage = $120,000 available equity.