HELOC alternatives: Ways to get home equity and other loans

Your home isn't just your sanctuary. It's likely your most significant financial asset. And if you've built up equity over the years, you might wonder how to put that money to work. 

Many homeowners turn to a home equity line of credit (HELOC) to tap into their equity. A HELOC works like a credit card tied to your home, letting you borrow what you need while only paying interest on what you use. It's flexible for ongoing expenses like renovations, paying off debt, or covering education costs.

But while HELOCs can be helpful, they're not your only option. A HELOC alternative might better suit your financial situation, risk tolerance, or borrowing needs. 

Let’s go through eight alternative ways to get equity out of your home that could be the right fit for your situation.

Why should you consider HELOC alternatives?

HELOCs are a great option for some, but there are details to consider. 

HELOCs have variable interest rates that can increase or decrease over time, potentially making your payments unpredictable. You're also using your home as collateral, which means you could lose it if you can't make payments. Plus, when the draw period eventually ends, you need to repay both principal and interest instead of just interest — which can affect your budget more than expected.

You might consider a HELOC alternative if you:

— Prefer a fixed-rate borrowing option

— Don’t want to risk your home as collateral

— Don’t qualify for a HELOC

8 HELOC alternatives

Is there a better option than a HELOC? There are actually quite a few. If you need cash, here’s a guide to some alternatives to a HELOC and why they could be right for you:

1. Home equity loan

A home equity loan provides a lump sum with a fixed interest rate and monthly payments. Unlike a HELOC's variable rate, you know what you’ll pay monthly, making budgeting easier and protecting you from rising interest rates. Interest rates on home equity loans are typically higher than first mortgages but lower than personal loans or credit cards.

Home equity loans work best when you know exactly how much you need upfront. And the application process is similar to getting your original mortgage, including an appraisal, credit check, and income verification. 

2. Cash-out refinance

A cash-out refinance replaces your existing mortgage with a new, larger loan. You receive the difference in cash, which you can use to pay for anything you want. The approval process takes longer than other options since it involves a new mortgage — you need to get a home appraisal, provide documentation, and pay closing costs similar to a mortgage.

This option makes the most sense when you can get a lower interest rate than your current mortgage, have significant equity built up, and need a substantial amount of cash. Remember that you restart the mortgage term, so you might make payments longer than initially planned.

3. Personal loan

Personal loans don't require collateral, so your home isn't at risk. Instead, you pay more in interest. You receive a lump sum with fixed monthly payments over a set term (usually less than 10 years). Approval often happens quickly — sometimes within a day or two. Just provide basic information about your income, employment, and existing debts. 

Personal loans work well for debt consolidation, medical expenses, or home improvements when you don't want to risk your home as collateral. They're also ideal for borrowers who need funds quickly or don't have enough home equity for secured options.

4. Credit card

Credit cards offer immediate access to funds without extensive application processes or closing costs. You can use them for smaller expenses and pay off the balance over time. Some cards offer promotional periods with low interest rates for new purchases or balance transfers, which is helpful for short-term needs.

Consider credit cards for emergency expenses, smaller cash flow needs, or rewards programs that give you small amounts of money back. They're also helpful when you need flexibility in how much you borrow and when you repay. Just keep in mind that regular credit card interest rates are typically very high, so it’s important to be in a position where you can pay them off every month. 

5. 401(k) loan

Many employer-sponsored 401(k) plans let you borrow against your retirement savings. You can typically borrow up to 50% of your vested balance or $50,000 — whichever is less. Interest rates are typically low compared to other borrowing options, and you pay the interest back to your own account.

Repayment terms are typically five years, though you can extend this if you're using the money to buy a primary residence. The biggest risk is leaving your job while you have an outstanding loan, at which point the remaining balance becomes a taxable distribution subject to penalties if you're under 59½.

6. Reverse mortgage

Available to homeowners 62 and older, reverse mortgages let you convert home equity into cash without monthly payments. You can receive funds as a lump sum, monthly payments, or a line of credit. The loan becomes due when you sell the home, move, or pass away.

The most common type is a Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration. But there are some stipulations. You must continue paying property taxes, homeowners' insurance, and maintenance costs, and you also have to live in the home as your primary residence. 

Reverse mortgages work best for retirees who want to age in place, need additional income, and aren't concerned about leaving the home to heirs. But there are upfront costs that can include origination fees, mortgage insurance premiums, and other closing costs.

7. Margin loan

Margin loans use your investments as collateral, so you can access cash while keeping your portfolio invested and potentially growing. Interest rates are typically tied to the prime rate and are often lower than credit cards or personal loans, making them a good option if your investments are going well. 

With a margin loan, you can normally borrow up to 50% of your account's value, depending on the broker. And there's no set repayment schedule as long as you maintain adequate equity in your account.

This option works best for investors with large portfolios who need temporary liquidity but don't want to sell investments and potentially trigger taxable events. It's particularly useful for real estate purchases or other investments where you expect to repay the loan relatively quickly.

8. Family loan

Borrowing from family members is risky, but it can offer flexible terms and potentially lower interest rates. You can negotiate repayment schedules that work for everyone and avoid traditional lending requirements like credit checks or income verification. Consider writing a formal agreement before diving in to avoid disputes.

From a tax perspective, the IRS requires minimum interest rates for loans above certain amounts to avoid gift tax implications. For 2025, family loans should charge at least the applicable federal rate (AFR) published monthly by the IRS.

Family loans can be ideal for situations where traditional lending isn't available or when family members want to help each other while earning a reasonable return. Just keep in mind that borrowing from a family member can strain familial relationships and lack the legal protections of other options. 

HELOC alternatives: A summary

Here’s a quick guide to the pros and cons of each of the options above: 

Option	What it is	Pros	Cons
HELOC	A revolving line of credit against your home	Ongoing access to funds, flexible, a few years of interest-only payments	Your home is collateral, you have to pay both principal and interest after a time
Home equity loan	A set loan against your home	Fixed rates, predictable payments, potentially lower rates than a credit card or personal loan	Your home is collateral, closing costs apply, and you get all funds upfront
Cash-out refinance	A new mortgage that replaces your old one and gives you cash	Single monthly payment, potentially lower interest rates, tax-deductible interest for home improvements	Closing costs, resets your mortgage term, you borrow against your home's equity
Personal loan	A basic loan with a lump sum and interest payments	No collateral required, quick approval, fixed payments, and use funds for any purpose	Higher interest rates than secured loans, lower limits, need good credit for best rates
Credit card	A type of revolving credit with a set limit	Immediate access, no application fees, rewards programs, promotional rates available	High interest rates after promos, variable rates, risk of debt, low minimum payments
401(k) loan	A loan against your 401(k) retirement funds	No credit check, interest paid to yourself, typically lower rates than credit cards	Reduces retirement savings, loan due if job lost, missed payments cause taxes and penalties
Reverse mortgage	A loan that borrows from your home equity	No monthly payments, stay in your home, funds usually tax-free	Reduces inheritance, ongoing costs, complex terms
Margin loan	A loan against your existing investments	Keep investments growing, competitive rates, quick access to funds	Volatile market risk, investments as collateral, margin calls if value drops
Family loan	A loan from a family member	Flexible terms, lower rates, no formal credit requirements	Can strain relationships, lacks legal protection, informal terms may cause issues

How do you choose the best HELOC alternative?

Here are some factors to keep in mind when deciding which alternative to a HELOC works best for your situation:

— Amount needed: Smaller amounts work better with personal loans or credit cards, while larger sums may require home equity loans or cash-out refinancing.

— Purpose of funds: Home improvements might benefit from tax-deductible interest on secured loans. Debt consolidation works better with predictable options, like fixed-rate personal loans.

— Comfort with collateral: If you don't want to risk your home, personal loans or credit cards might be better choices despite higher rates.

— Interest rate preference: Fixed rates offer predictability, while variable rates might start lower but can increase over time.

— Repayment timeline: Longer repayment terms reduce monthly payments but increase total interest paid.

— Credit score and income: Better credit typically qualifies you for lower rates across all loan types. If your credit score is less than ideal, you might want to opt for a collateral-based option or a family loan to avoid high rates.

— Available alternatives: Your home equity alternative options may vary depending on your financial and credit history, location, and other factors. For example, a home equity loan might not be worth it if you haven’t built up enough equity yet.

If you’re looking for the easiest option, Better offers both home equity loans and cash-out refinancing as alternatives to HELOCs. With Better, you can compare rates for home equity loans and get personalized offers to help you make an informed decision. The process is fully digital, and you can get pre-approved in as little as 3 minutes without impacting your credit score.

Get started with Better’s alternative financing solutions

While HELOCs can be a powerful tool for accessing your home's equity, they're not the only option out there. From home equity loans with fixed rates to personal loans that don't require collateral, each alternative to a HELOC has unique advantages to help you get the cash you need.

Better's home equity solutions and cash-out refinancing options offer competitive rates and a streamlined digital experience, making it easier to find the right alternative for your financial goals. Start your pre-approval today.

...in as little as 3 minutes – no credit impact