Table of Contents
- Key Points
- • HELOCs provide flexible funding but may not be ideal if you want fixed interest rates or prefer not to use your home as collateral.
- • Borrowers can choose from several widely used alternatives for funding, including home equity loans, cash-out refinances, personal loans, and credit cards.
- • A major benefit of a HELOC is its revolving nature, which allows you to borrow and pay interest on only what you need during the initial draw period.
- • A significant drawback is that variable interest rates can lead to unpredictable payment increases once the principal-and-interest repayment phase begins.
- • A personal line of credit, reverse mortgage, or home equity sharing agreement are other HELOC alternatives.
Home equity lines of credit (HELOCs) offer flexible financing often at competitive rates, but they’re not the right fit for everyone. If you’d rather not deal with variable interest rates or you prefer not to borrow against your home, you may be looking for a HELOC alternative. Fortunately, there are several alternatives to HELOCs that can provide you with funding, including home equity loans, cash-out refinance, personal loans, credit cards, and more. Find out more about these HELOC alternatives so you can choose the best financing option for your needs.
Why Look for a HELOC Alternative?
A HELOC has several benefits, but it’s not the best choice for everyone. On the plus side, a HELOC is highly flexible — you can borrow (and pay interest on) only what you need, and the funds become available again as you pay them back. When your borrowing period (aka the draw phase) ends, you’ll have a repayment period that may span up to 20 years.
However, interest rates on a HELOC are often variable, meaning your payments can change and be tough to budget for. You’ll generally have to pay interest during the draw period followed by larger principal-and-interest payments during the repayment period.
Some HELOCs come with fees, and you’ll need to meet specific requirements for credit, income, and home equity to qualify. You’ll also be securing the HELOC with your home, meaning you risk foreclosure if you can’t keep up with payments.
If you’d prefer a fixed interest rate, straightforward repayment term, or loan that’s not secured by your home, an alternative to a HELOC may be a better choice.
8 HELOC Alternatives to Consider
HELOCs aren’t your only option for borrowing money. Here are eight alternatives to HELOCs worth exploring.
1. Home Equity Loan
Perhaps the most popular alternative to HELOC borrowing is a home equity loan. If you’ve built up equity by making steady payments on your home loan, you can borrow against it as long as you have at least 15% equity in your home.
Similar to a HELOC, a home equity loan involves borrowing against your home. As you compare a home equity line of credit vs. home equity loan, here are a few things to keep in mind: A home equity loan is not a revolving line of credit, but rather a lump-sum amount received all at once. This straightforward structure may be useful if you know exactly how much money you need upfront.
Home equity loans often come with fixed interest rates and a set repayment term up to 30 years. You’ll make the same payment each month, which may be easier to work into your budget. You’ll start repaying the loan immediately after you receive it, in contrast to a HELOC which has a draw period of up to 10 years, during which you only pay interest, followed by the repayment period.
You can often borrow up to 85% of your home equity, depending on the lender. Like a HELOC, a home equity loan is secured by your home and missing payments could mean foreclosure.
2. Cash-Out Refinance
A cash-out refinance also involves borrowing against your home, but it could snag you a lower interest rate. With this type of refinance, you exchange your current mortgage for a new, larger mortgage.
Then, you pocket the difference as cash. For example, you could refinance a mortgage of $200,000 into a $300,000 loan and receive $100,000 in cash. You’ll pay back this new loan with its adjusted interest rate and terms.
This approach could make sense if you want to keep things simple, but it wouldn’t be ideal if your interest rate would increase. Compare a home equity loan vs. HELOC vs. cash-out refinance to weigh the pros and cons of each.
3. Personal Loan
If you’d rather not borrow against your home, one of the most common home equity loan alternatives is a personal loan. A personal loan is typically unsecured, so it wouldn’t use your home or any other asset as collateral.
You can use a personal loan for almost anything, from home renovations to debt consolidation to major expenses. Depending on the lender and your credit score and other qualifying factors, you may get to borrow up to $100,000 with a repayment term of one to seven years.
Interest rates are usually fixed, so your monthly payment will stay constant. Many personal loan providers let you prequalify for offers online, so you can check your rates and shop around without dinging your credit.
4. Personal Line of Credit
A personal line of credit is also sometimes unsecured, so you don’t have to back it with an asset. It works as a revolving line of credit; you can borrow funds as needed and pay them back as you go. In this way it is similar to a HELOC.
As with a HELOC, the interest rate on a personal line of credit is often variable, meaning your monthly payments may be unpredictable. Your rates and terms largely depend on your financial profile, especially your credit score and income.
5. Credit Card
Charging expenses to a credit card is another option, but be cautious about high interest rates. As of early 2026, the average interest rate on a credit card is 21%. If you carry a balance over from month to month, you could rack up high interest charges that make your debt difficult to pay off.
One possible workaround is applying for a credit card with a 0% APR promotional period. You may get a year or longer of zero interest charges to pay off your balance. But once that period ends, your rate will shoot up and could make your debt costly.
6. Reverse Mortgage
Reverse mortgages are another way to get equity out of your home without refinancing. They allow homeowners who are 62 or older to access equity in their home. You can choose how you borrow the money with a reverse mortgage, whether as a lump sum, monthly payments, or a combination of the two.
You can use the funds for various expenses, whether to cover medical bills, home renovations, or everyday living expenses. You won’t have to make monthly payments on your mortgage, but the loan will become due if you move. If the borrower passes away, their heirs must pay off the loan or sell the home.
7. Home Equity Sharing Agreement
A home equity agreement, also known as a home equity investment, involves getting a lump sum of cash in exchange for a share of your home’s future value. You won’t make monthly payments, but you’ll have to pay back the amount plus a portion of your home value when you sell the home or your term is up.
This option may appeal if you want to avoid monthly payments or don’t qualify for traditional financing. However, the ultimate costs are unpredictable, and you may end up paying more than you expect if your home value increases significantly.
8. Sale-Leaseback Agreement
With a sale-leaseback agreement, you sell your home to a company or investor and then rent it back. You’ll receive a lump sum of cash and continue living in your home, but you’ll no longer own it. You also won’t have control over your rent payments, which could rise over time. And if the home appreciates in value, you’ll no longer benefit from that increase.
Sale-leaseback agreements are often a last resort for homeowners in challenging financial situations. It could also be a short-term arrangement while you look for a new home to buy.
How to Choose the Right HELOC Alternative
Considering the following questions can help you choose the right HELOC alternative for your needs:
- • How much money do you need? If you need a large amount over $100,000, a home equity loan or cash-out refinance may be best. If a smaller amount is better, a personal loan or credit card may cover costs.
- • Does your project have fixed or unpredictable costs? If you know exactly how much money you need, a home equity loan, cash-out refinance, or personal loan could offer that lump-sum amount. If you’d like to borrow funds on an ongoing basis, a personal line of credit or credit card may be preferable.
- • What’s your risk tolerance? Borrowing against your equity is risky if you’re unsure of your ability to repay. An unsecured option like a personal loan or credit card may be better if you’d prefer not to use your home as collateral.
- • Are you comfortable with fluctuating payments? Consider whether you’d prefer a fixed interest rate and monthly payments or feel comfortable budgeting for a variable interest rate with monthly payments that may go up or down.
- • What are your long-term homeownership plans? If you’re planning on moving soon, taking out a loan tied to your house may not be ideal. But if you’re staying put for a while, leveraging your equity could get you a competitive rate.
- • Do you want potential tax benefits? Interest on mortgages is potentially tax-deductible if you use the money you borrow to buy, build, or substantially improve your home. Home equity loans, HELOCs, and refinances are all mortgages so if this deduction might sway you one way or the other, consult your tax advisor.
The Takeaway
While a HELOC can be a useful product for some homeowners, it’s not everyone’s first choice. There are quite a few HELOC alternatives that can provide funding, whether you’re looking to tap into your home equity, take out an unsecured loan, or charge expenses on a rolling basis. Compare interest rates and repayment terms to find a financing product that works for your budget. The right choice all comes down to your individual needs.
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FAQ
What is the best alternative to a HELOC?
The best alternative to a HELOC depends on your needs and goals. A home equity loan may be a good option if you’re comfortable borrowing against your home but prefer a fixed interest rate and predictable monthly payment. If you want home equity loan alternatives that are unsecured, a personal loan could be ideal if you’d like an unsecured loan and have strong credit, while a 0% APR credit card could work if you can pay off your balance quickly. Review all your HELOC alternatives to determine which would be the best fit for you.
Can I get a HELOC alternative with bad credit?
It can be challenging to qualify for financing with bad credit, but it’s not impossible. Some personal loan providers, for example, accept low credit, though your rates and fees may be higher. Home equity borrowing might also be possible, because for some lenders your equity level and income could outweigh the risk associated with your credit score.
Is a home equity loan safer than a HELOC?
A home equity loan may be safer than a HELOC because it offers a fixed interest rate and predictable monthly payments, whereas the payments on a HELOC can fluctuate and be harder to budget for. However, both home equity loans and HELOCs use your home as collateral, meaning you risk foreclosure if you can’t repay.
What is a home equity sharing agreement?
A home equity sharing agreement involves borrowing money in exchange for a portion of your home’s future value. The costs of this agreement can be high and difficult to predict.
Are HELOC alternatives tax deductible?
Some HELOC alternatives are tax deductible in certain situations. The interest you pay on a home equity loan or cash-out refinance (or a HELOC itself) may be tax deductible if you use the funds to buy, build, or substantially improve your residence.
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