Best Home Equity Lenders of December 2022

More from NerdWallet

• What is home equity?

• Calculate your home’s value

• Why you should learn your home’s value

What is equity in a home?

Your equity is the value of your home, minus what you owe. For example, if your house is worth $300,000 and you owe $100,000 on your mortgage, you have $200,000 in equity. This can be true even if you haven’t paid $200,000 into the home — say, if you’ve made valuable improvements or if property values have increased in your area.

If you’re planning a big home improvement project (or need to access a large amount of cash for another reason), you can pull some of this equity out in the form of a home equity loan, a home equity line of credit or a cash-out refinance. The amount you could be eligible to borrow depends on multiple factors, including how much equity you have, your credit score and your debt-to-income ratio.

» MORE: Home equity loan calculator

How to get equity out of your home without refinancing

If you don’t want to refinance your primary mortgage, you have two options for accessing equity: a home equity loan or a HELOC. Whichever you choose, if you use the money for home improvements, some of the interest you pay may be tax deductible.

Home Equity Loan

A home equity loan delivers your financing as one single payment. You’ll pay it back at a fixed rate. A home equity loan may be a good fit if:

• You already have an idea of how much cash you need.

• You want the predictability of a fixed interest rate.

» MORE: See our picks for best home equity loan lenders.

HELOC

A HELOC allows you to take out equity as you need the cash. Each withdrawal from a HELOC may have a different rate based on market conditions. A HELOC may be a good fit if:

• You don’t know exactly how much cash you’ll need.

• You’re doing a series of home improvement projects that will require multiple draws.

• You’re able to pay a higher interest rate for future draws.

» MORE: See our picks for best HELOC lenders. 

Refinancing and extracting equity at the same time

You can also tap your equity through a cash-out refinance. Rather than getting a second mortgage, a cash-out refinance replaces your current mortgage with another for more than you owe on your home, allowing you to pocket the difference. A cash-out refinance may be a good fit if:

• It has a lower interest rate than a HELOC or a home equity loan.

• Rates have fallen since you bought your home.

• You want to make only one monthly payment.

While you’ll have to pay closing costs to take out any of these options, the closing costs for a cash-out refinance are typically higher than those for a HELOC. And as with HELOCs and home equity loans, the money you receive from a cash-out refinance isn’t taxable. The interest is only deductible if you use it for home improvements.