Can you get a home equity loan if your house is paid off?

After years of disciplined payments, you've finally paid off your home. But that doesn't have to mean your financial journey is over. 

Maybe you're eyeing a kitchen remodel, need to tackle a surprise medical bill, or want to consolidate high-interest debt. That paid-off home represents major untapped equity that could help you achieve your goals — without selling your property.

In fact, tapping into your home equity could be a strategic way to unlock large sums of money at a relatively low interest rate compared to unsecured personal loans or credit cards. Whether you pursue a home equity loan, a HELOC, or even a cash-out refinance, your home's value can provide flexible funding for major life goals.

Can you get a home equity loan if your house is paid off? Here are the different ways to access your home's value, what lenders look for in an application, and important considerations before moving forward with a borrowing decision.

Can you get a home equity loan on a paid-off house?

So, can you use a paid-off house as collateral for a home equity loan? The short answer is yes. In fact, owning your home completely puts you in an excellent position to borrow against its value. Lenders see homeowners who've paid off their mortgages as financially responsible and tend to offer favorable terms.

Even though there's no mortgage left to repay, you can still work with a lender to take out a new line of credit or refinance option. This allows you to borrow against your home and use the funds for virtually any purpose — from covering emergency expenses to smoothing out large, planned purchases. 

A traditional home equity loan gives you a lump sum with a fixed interest rate and stable monthly mortgage payments. You repay the mortgage over a set term of up to 30 years, making it perfect for one-off expenses like major home renovations or debt consolidation.

...in as little as 3 minutes. No credit impact.

As for how much you can borrow, owning your home outright means you have 100% equity, but lenders typically won't loan you the full value. Most financial institutions allow you to borrow between 80–85% of your home's appraised value, though some may go as high as 90% or even 95%. For example, if your home is worth $500,000, you might be able to borrow between $400,000 and $475,000, depending on the lender and your credit score.

Pros and cons of getting equity on a paid-off house

Taking out a home equity loan on a house you own can be a good idea for the right borrower, but there are also some potential drawbacks to consider. Here are some of the most impactful.

Advantages of a home equity loan on a paid-off house

— Better approval odds: When your home is fully paid off, lenders view you as less risky. Your history of responsible financial management shows you're a reliable bet. Plus, with no mortgage payments, your debt-to-income ratio is likely to be much lower than other borrowers unless you have a lot of other debts. This often translates to better loan terms, a higher chance of getting approved, and lower interest rates.

— Flexibility: You can use funds from a home equity loan for virtually anything. Common ways homeowners use home equity loans are for major home renovations, college tuition, debt consolidation, emergency expenses, or even purchasing an investment property.

— Potential tax advantages: The IRS lets homeowners deduct any interest they pay on home equity loans or HELOCs if the funds are used to "buy, build, or substantially improve" the home securing the loan. This could mean significant tax savings if you use the money for major renovations or home additions.

Disadvantages of a home equity loan on a paid-off house

— Foreclosure risk: When you take out a mortgage on a paid-off house, your home is on the line if you can't pay, just like any other mortgage. After the security of full homeownership, you're once again putting your property at risk of foreclosure if financial hardship strikes and you can't make the mortgage payments.

— Upfront expenses: Getting a home equity loan isn't free. You'll typically face closing costs of 2–5% of the mortgage amount. These might include appraisal fees, origination fees, title search, and other charges that reduce the actual amount you receive.

— Back in debt: When you take out a loan on a house that is paid off, you're taking on a new payment obligation that could last for decades. If property values decline, you might even end up with negative equity, where you owe more than your home is worth. That's a dramatic departure from owning your home free and clear.

— Monthly payment obligation: Once you take out a home equity loan, you'll have a new monthly payment to manage. Even if you're comfortable with the amount now, consider how it might impact your finances in the future. This is especially important if you're approaching retirement or facing potential income changes.

How to get a home equity loan on a paid-off house

If you own your home, you can borrow against it. A home equity loan is one option, but there are other alternatives. Here's a breakdown of the most common choices:

Home equity loan

A home equity loan lets you borrow a lump sum against your property's value with a fixed interest rate and consistent monthly payments. You repay the mortgage over a set period, often up to 30 years.

This option works best for homeowners who need a specific amount for a one-time expense and want their payments to be stable and predictable. If you're planning a major renovation where you know the costs upfront or want to consolidate high-interest debt, a home equity loan gives you the peace of mind of knowing exactly how much to pay each month until you’ve paid off the mortgage.

Home equity line of credit (HELOC)

A HELOC works more like a credit card than a traditional loan. You get approved for a line of credit based on your home's value, but you only pay interest on what you actually use. Most HELOCs have a draw period (typically 10 years) when you can borrow and repay repeatedly and only make interest payments. After that, the repayment period starts, when you make payments toward both the interest and the principal.

HELOCs usually have variable interest rates and work best for ongoing projects with uncertain costs or when you want financial flexibility. If you're renovating your home in phases or want access to funds for potential emergencies, a HELOC lets you borrow only what you need, when you need it.

Cash-out refinance

A cash-out refinance usually replaces an existing mortgage on a property. But when your home is already paid off, you're simply taking out a new mortgage to receive a lump sum in cash.

Cash-out refinances often have lower interest rates than home equity loans or HELOCs, making them attractive for homeowners who need a lot of funds for long-term investments like rental property purchases or major home renovations.

Better makes accessing your home equity easy with a fast and simple digital application process. You can get pre-approved for a home equity loan, HELOC, or cash-out refinance in just a few minutes without affecting your credit score and access up to $500,000 of your home's equity. And with competitive rates and no hidden fees, you can do it all without breaking the bank.

...in as little as 3 minutes. No credit impact.

Things to consider before getting a loan on a paid-off home

So, you own your house outright and want a loan. Here's what to think about before firing off an application:

What are the funds for?

Carefully consider how you'll use the borrowed money. The best uses typically either increase your home's value, like renovations, or have long-term financial benefits, like debt consolidation or education. Home improvements can be particularly strategic since they might qualify for tax deductions on the interest.

Can you afford it?

Carefully assess your ability to manage the new monthly payments over the long term. Factor in not just your current income and expenses, but also potential future changes. Ask yourself questions like:

— Will you be retiring soon?
— Is your income likely to fluctuate?
— Could other major expenses arise?

Remember to account for all costs associated with the mortgage, including closing costs and potential rate increases (for variable-rate loans).

Are there better alternatives for your needs?

Before tapping your home equity, explore other borrowing options. Personal loans have higher interest rates but don't put your home at risk. Credit cards with promotional 0% APR periods might work for smaller, short-term needs, but rates can typically jump up to 20%+ once that promotional period ends.

Unlock your home's equity with Better

Owning your home outright puts you in an excellent position to access the equity you've built up when you need it. Whatever your needs, your paid-off home is a valuable financial resource you can tap into at any time.

Better's digital-first approach eliminates the paperwork headaches and lengthy timelines of traditional lenders. With decisions available in as little as 24 hours and a simple application that won't impact your credit score until you're ready to move forward, you can understand your borrowing power without commitment — with no hidden fees or surprises along the way.

Ready to explore your options? Check your eligibility for home equity loans, HELOCs, or cash-out refinances now.

...in as little as 3 minutes. No credit impact.