Tapping home equity, from cheapest to costliest
If you can carry a monthly payment, a HELOC is usually the cheapest way to tap equity.
- A HELOC or home equity loan lends against your home at a normal rate, with a monthly payment.
- A home equity investment (HEI) gives cash now with no monthly bill.
- "No payment" is not "no cost." You trade a share of your home's future value.
- In a rising market that share can cost more than a loan at three times the rate — and a balloon comes due at the end.
Put a real number on it
The CFPB compared a $50,000 HEI with a $50,000 HELOC at 9%. In its strongest-growth case, the HEI repayment was more than twice the HELOC cost. Source: CFPB.
The options, cheapest first
Each one, how it works and where the cost hides.
HELOC
A line of credit against your home; borrow as needed, pay interest on what you use. Cheapest if you can carry the payment.
Home equity loan
A lump sum at a fixed rate, repaid on a set schedule. Predictable, if you want one number.
Cash-out refinance
Replace your mortgage with a bigger one and pocket the difference. Rarely worth it when new rates top your current one.
Home equity investment
Cash now, no monthly payment, for a share of your home's future value. No bill — but it can cost the most.
Reverse mortgage
For homeowners 62+. Draw equity with no monthly payment — but fees are steep and the balance grows against your heirs.
Side by side
| Option | Monthly payment | Rate / cost | The catch |
|---|---|---|---|
| HELOC | Yes | Variable interest | Rate can rise Compare first |
| Home equity loan | Yes | Fixed | Less flexible |
| Cash-out refinance | Yes (new mortgage) | Resets rate | Rarely helps if rates rose |
| Home equity investment | None | Share of upside | Balloon; can cost the most |
An HEI feels free because there's no monthly bill. But you're selling a slice of your home's future gains. Run the case where your home doubles: the no-interest deal can cost more than a mortgage at three times the rate.
The full settlement also comes due at the end of the term. If you can't pay it from savings or a refinance, it can force a sale.
✓ An HEI is worth modeling if
- You're equity-rich but income-short.
- You can't clear the income hurdle for a HELOC.
- You've modeled the buyout in a rising market and can live with the number.
✕ Skip it if
- You have any cheaper way to reach the cash.
- You could carry a HELOC or home-equity-loan payment.
- You'd struggle to settle the balloon at the end.