SoFi

Credit card debt continues to be a major hurdle for Americans. More than 40% of all U.S. adults say they can’t pay off their credit bills each month — and those unpaid balances rack up interest fast. But there could be a solution for homeowners: using home equity to pay off credit card debt.

Below, we’ll walk through some of the benefits of using a home equity loan to pay off credit card debt, how to get a home equity loan to consolidate debt, and the costs and risks involved.

How Using Home Equity to Pay Off Credit Card Debt Works

If you’re a homeowner wondering, “Can I use home equity to pay off credit card debt?” the answer is likely yes — assuming you meet a lender’s requirements. In fact, debt consolidation is one of the most common reasons people borrow against home equity according to a recent SoFi survey of home equity borrowing attitudes. The most straightforward way to do this is with a home equity loan.

Home Equity Loans, Explained

A home equity loan is an installment loan that lets you borrow against the equity you’ve already built in your house through your down payment and monthly mortgage payments. Your home serves as collateral on the loan, so technically a home equity loan is also a second mortgage.

With a home equity loan, you receive a lump sum of money (the principal, or what you borrowed) upfront, and then you’ll pay back what you borrowed in monthly installments, typically over 5 to 30 years, though terms may vary by lender. A home equity loan’s annual percentage rate (APR) includes the interest rate — typically fixed — and any fees. Home equity loans carry closing costs, much like a mortgage.

Unlike a personal loan for debt consolidation, a home equity loan uses your home as collateral. This is why when you compare a home equity loan vs. personal loan, you’ll see that home equity loans have much lower interest rates. But using your home as collateral also means you could lose your house to foreclosure if you don’t make your payments.

How Home Equity Is Determined

Your home equity is the difference between your home’s current market value and how much you still owe on your mortgage. For instance, if your home is worth $400,000 but you still owe $250,000 on your mortgage, you have $150,000 in home equity.

That doesn’t mean a lender will let you borrow $150,000, though. Lenders typically limit how much you can borrow based on your combined loan-to-value (CLTV) ratio. This measures all outstanding loans secured by your home (e.g., your mortgage) against its current market value. The maximum CLTV a lender allows vary, but many set a limit of 85%, though some may offer more wiggle room. Your credit score and income may affect how much you can borrow.

In our example, if a lender allows a maximum CLTV of 85%, the total amount owed against a $400,000 home can’t exceed $340,000 (85% x $400,000). If you still owe $250,000 on your mortgage, you could potentially borrow up to $90,000 through a home equity loan ($340,000 – $250,000).

Recommended: How to Leverage Home Equity to Pay Off Student Debt

Ways to Use Home Equity to Pay Off Credit Cards

There are two core ways to use home equity to pay off credit cards: a lump-sum home equity loan or a revolving home equity line of credit (HELOC).

Using a Home Equity Loan to Pay Off Credit Cards

A home equity loan, or HELOAN, is a traditional installment loan that lets you borrow against the equity you’ve built in your home. These lump-sum loans usually have fixed interest rates.

You’ll receive all the money you’re borrowing upfront, which you can then use to pay off your various credit cards. You’ll also immediately begin repaying what you borrowed, plus interest, in monthly installments over a set number of years.

For many, this is the easier path to using home equity to pay off your credit card debts. You can wipe out your credit card debt all at once and then simply make one manageable monthly payment until you’re debt-free.

How a HELOC Can Pay Off Credit Card Debt

Some people may prefer to use a home equity line of credit to pay off credit card debt. HELOCs are typically variable rate and allow you to withdraw funds as needed (up to your limit) during a draw period, which may last three, five or even 10 years. During this time, you may make interest-only payments on what you borrowed. You’ll begin principal and interest payments when the draw period ends.

Because the HELOC rate is usually variable and payments can be more complicated, a lump-sum home equity loan may make more sense for paying off credit card debt. But if you need help with expenses beyond paying off credit cards, such as ongoing home renovations, a HELOC could be the right move. In a recent SoFi HELOC vs. HELOAN survey, more homeowners chose a HELOC than a home equity loan after researching their options, though not all of these owners were consolidating debt.

Understanding Credit Card Debt vs Home Equity Debt

Credit card debt is notoriously difficult to get out of because of the high interest rates. For many, paying off that debt with a home equity loan makes sense — but it also involves taking on a different kind of debt.

So what are the differences between credit card debt and home equity debt? The table below breaks it down:

	Credit Card Debt	Home Equity Debt
Interest Rates	Typically higher	Typically lower
Interest Rate Type	Variable	Fixed for home equity loan; variable for HELOC
Repayment	Monthly payments on ongoing basis	Set repayment term
Collateral	No collateral	House
Risk of missed payments	Late fees, collections, and lawsuits	Foreclosure on your home
Costs	Annual fees (if applicable)	Closing costs

Benefits of Using Home Equity to Pay Off Credit Card Debt

There are several advantages to using home equity to pay off credit card debt, including:

•   Lower interest rates: Because your home serves as collateral on the loan, HELOCs and home equity loans typically have much lower interest rates than credit cards.

•   One monthly payment: Rather than juggle multiple credit card bills, you’ll have to make only one monthly payment to your lender.

•   Fixed interest rate: Home equity loans typically have fixed rates; credit card rates are variable, which makes your payments less predictable.

•   An end date: Home equity loans provide a clear path to debt payoff, with an end date in sight. Making the minimum payment on a high-interest credit card, on the other hand, could mean your debt actually increases each month.

Recommended: 5 Ways to Pull Equity Out of Your Home

Home Equity Loan Costs, Requirements, and Timelines to Know Before Applying

While home equity loans may help you save a lot of money over time by spending less on high interest rates and eliminating credit card debt, there are some costs to be aware of:

•   Interest rates: Though lower than credit card interest rates and personal loan rates, home equity loans do still accrue interest.

•   Closing costs: Home equity loan closing costs vary by lender but are often 2% to 5% of the loan cost.

•   Prepayment penalties: Some home equity loans may have fees for paying off the loan early. Check the terms and conditions of any loan to understand these and other potential fees.

Home equity loan eligibility requirements vary by lender, but generally, you’ll need to to meet certain minimums to qualify, including:

•   Credit score: Lenders often require a credit score of at least 680, though some may allow lower scores and others have stricter guidelines.

•   Income: You’ll need to demonstrate a steady source of income. Lenders may have minimum monthly income requirements.

•   Debt-to-income (DTI) ratio: Lenders will also consider your monthly debt obligations, relative to your income. Requirements vary by lender. Some lenders like to see a max debt-to-income ratio as low as 36%, while others allow up to 50%.

•   Sufficient equity: And of course, you need to have built enough equity in your home to qualify. You can build equity by making a large down payment, paying down your mortgage, or both. You may also be able to get your home reappraised for a higher value than what you paid for it, which can increase your equity.

Finally, it’s important to note that a home equity loan isn’t an overnight solution. You’ll need to take some time to compare lenders and apply for the home equity loan. Underwriting and approval can take weeks. From application to closing (including loan fund disbursement), plan for two to six weeks.

How to Apply for a Home Equity Loan to Pay Off Credit Card Debt

To apply for home equity financing to pay off credit card debt, take the following steps:

•   Determine the right type of funding: In most cases, a home equity loan makes more sense for paying off credit cards than a HELOC. Weigh both options carefully, and consider these against alternatives such as personal loans and balance-transfer credit cards.

•   Review your finances: Check your credit score, income, outstanding debts, and current equity to ensure you’ll qualify.

•   Compare lenders: Always prequalify with a few home equity lenders to compare rates, fees, and terms.

•   Apply: When you’ve found the best home equity loan lender, follow the steps to apply online or, if applicable, in person.

•   Stay on top of the process: During the process, you may need to provide additional information to keep underwriting moving. Pay attention to all communication from the lender, and respond quickly. This ensures a smooth path to closing and loan funding.

Steps to Successfully Pay Off Credit Cards With a Home Equity Loan

If you’ve been approved for a home equity loan, here’s how to pay off your credit card debt:

•   Keep making credit card payments: The home equity loan and HELOC closing process can take two to six weeks, so approval doesn’t mean you can immediately stop making payments. Until you’ve got the money in your account, keep up with all credit card payments to avoid late fees.

•   Pay off your debts directly: Once the lump-sum payment is direct-deposited into your bank account, use the funds to pay off your credit cards entirely. Once the balance is $0, treat your credit card like a debit card going forward — only swiping it for purchases you can immediately pay off.

•   Set up repayment for your home equity loan: Set up automatic payments for your home equity loan. If you keep your checking account balance relatively low, set monthly reminders to transfer money into the account to cover the loan payment.

Tips on Using Home Equity to Pay Off Credit Card Debt

Here are some tips to pay off credit card debt using your home equity:

•   Prequalify with multiple lenders: Explore multiple options for your home equity loan to find the lowest rate and fees or the best terms for your needs.

•   Compare interest rates and costs: Make sure the home equity loan’s interest rate and fees — appraisal fees, origination fees, etc. — will cost you less than your various credit cards’ interest rates.

•   Understand the risks: Before moving forward, make sure you understand that a home equity loan or line of credit uses your home as collateral. If you fall behind on payments, you could lose your home.

•   Don’t overborrow: Even if you qualify for a larger amount, borrow only the money you need to pay off your credit cards and any other higher-interest debts.

•   Address the spending habits that got you here: To avoid racking up credit card debt again, stop using your credit card unless you can immediately pay it off. Otherwise, you risk getting into the same financial situation again. “You may not be able to completely reform an overspending habit overnight. But by tracking your spending, setting up a basic budget, and altering just some of your everyday habits, you may soon gain control over your financial life,” says Brian Walsh, CFP^® and Head of Advice & Planning at SoFi.

•   Stay on top of payments: Make your mortgage payments and home equity loan payments a top priority to ensure you don’t lose your home. Set up automatic payments if it will help you stay on top of the loan repayment.

Where Can You Get a Home Equity Loan to Pay Off Credit Cards?

Banks and credit unions offer home equity loans to pay off credit cards. Similarly, mortgage lenders often offer these loans. As financial technology (fintech) companies have become more common, many borrowers have also taken out home equity loans with lenders that do business only online.

The Takeaway

A home equity loan could be a good resource to pay off your high-interest credit card debt, and a HELOC is also a smart pick for some people. In general, home equity loans have a much lower interest rate than cards, plus an easier repayment schedule, and a clear path to wiping out your debt.

SoFi offers both home equity loans and home equity lines of credit (HELOCs) to help you leverage your home's value. Access up to 85% of your equity (up to $750,000), to fund renovations, consolidate high-interest debt, or cover significant expenses. Both options offer competitive rates compared to other loan types. Plus, you’ll be paired with a dedicated SoFi Mortgage Loan Officer who can help you find the right fit for your needs.

Unlock your home’s value with a home equity loan or HELOC from SoFi.

FAQ

Does SoFi offer HELOC or home equity loan products?

Yes, SoFi offers both home equity loans and home equity lines of credit (HELOCs) to eligible homeowners. These are both good resources for consolidating high-interest credit card debt.

Should you use a home equity loan to pay off credit card debt?

Paying off credit card debt with a home equity loan could be a good idea. Generally, you’ll get a lower rate, more manageable monthly payment, and clearer path to debt freedom. However, keep in mind that a home equity loan puts your house at risk of foreclosure. Only go this route if you’re certain you can keep up with monthly payments.

Can you use a home equity loan to consolidate credit card debt?

Yes, you can use a home equity loan to consolidate credit card debt. This is a great strategy for debt payoff because you could potentially lower your monthly debt obligation and lower your interest rate.

How do you qualify for a home equity loan?

To qualify for a home equity loan, you must be a homeowner with sufficient equity in your home. Lenders typically have requirements regarding a minimum credit score, minimum monthly income, and max debt-to-income ratio. These vary by lender.

What’s the best way to get credit card debt under control?

One smart way to get credit card debt under control is to consolidate the debt with a home equity loan or personal loan. These loans typically have lower interest rates than your credit card and result in a lower monthly payment. But consolidating your debt is only half the battle; you also need to address the habits that led to the credit card debt. Make a budget and ensure you don’t overspend on credit cards going forward.

Is it smart to do a home equity loan to pay off credit card debt?

Using a home equity loan to pay off credit card debt could be a smart decision if the loan’s monthly payments (plus fees) are meaningfully lower than the rates and fees associated with your credit card. Only take out the home equity loan if you can easily afford the new monthly loan repayment. Understand the risk involved: If you fall behind on payments, your home could be foreclosed on.

What disqualifies you from a home equity loan?

You may be disqualified from a home equity loan if you don’t have sufficient equity in your home or if you don’t meet a lender’s requirements for credit score, income, or debt-to-income ratio. Lenders may also have requirements for citizenship, age, and similar factors.

How is a $50,000 home equity loan different from a $50,000 home equity line of credit?

With a $50,000 home equity loan, you’ll receive the funds upfront and then make predictable monthly payments until you’ve repaid what you borrowed, including applicable interest. With a $50,000 HELOC, you’ll be able to access the funds as needed during the draw period. You may not have to begin repayment on the borrowed amount immediately, but rather make interest-only payments until the draw period ends. Then, you’ll begin the repayment period. HELOC interest rates are often variable.

---

Photo credit: iStock/Dimensions

This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOHE-Q426-069

Read more

As of early 2026, only 29% of people say now is a good time to buy a house according to a Gallup poll. That number is up only slightly from 2025, when 26% felt the time was right. High home prices, low inventory, and high interest rates have conspired to make many Americans, especially the youngest people, unenthusiastic about their home ownership prospects. The median home price was $393,895 in September 2026, according to Redfin, and the average 30-year mortgage rate was 7.28% in October.

The last time the average 30-year loan rate topped 7.50% was in 2023, so consumers are clearly feeling the pinch. However, whether or not now is a good time to buy a house depends heavily on your unique financial situation and local market dynamics.

Determining When You’re Ready to Buy

Before you assess the current real estate market and pay close attention to interest rate fluctuations, it’s important to understand your financial and personal situation.

Here are a few factors you may want to consider before deciding if a new home is a good play right now.

Making Room in the Budget

When buying a home, the first thing you’ll need to budget for is a down payment.

While 20% of the home’s value is the benchmark, you may only need 3.5% if you apply for an FHA loan. But even 3.5% can be a chunk of change. If you want to buy a $300,000 house, 3.5% is $10,500.

Your home-buying budget should be large enough to cover a down payment as well as closing costs, which typically include homeowners insurance, appraisal fees, property taxes, and any mortgage insurance.

Remaining Consistent

How long do you plan to live in the city where you’re eyeing a home? If you plan on staying in the home long-term, now could be a good time to buy because staying put will give your home time to appreciate (subject to market fluctuations).

Since mortgage lenders pay close attention to job consistency and a steady income, you may also want to consider your job security. Especially during uncertain times, it’s crucial to feel confident knowing you can make your mortgage payments every month.

Checking Your Financial Profile

It’s a good idea to check your financial profile. Doing so may help you secure better financing terms when you purchase a home. Lenders will review your credit history, debt-to-income ratio, and assets, among other factors, to determine your eligibility for a mortgage.

Lenders review your credit history to gauge your creditworthiness and the level of risk to lend you money. They look at your debt-to-income ratio to indicate how much of your income goes toward debt payments every month.

If your ratio is high, it can show you’re overleveraged, which may mean you’re not in a position to take on more debt like a mortgage. You may also face a higher interest rate.

Last, a mortgage applicant can list assets like cash and investments. The more assets you have, the less risky lenders view you.

Weighing Renting vs. Buying

You may want to compare renting vs. buying a home.

If renting a home in your community is less expensive than buying, you may want to hold off on a home purchase. Conversely, if renting is more expensive, you may be more eager to purchase a new home.

Overall, if you find that these factors point you in the direction of homeownership, it’s possible you’re ready to buy a home and can begin determining the perfect time to pounce.

Observing Interest Rates

When determining if now is a good time to buy a house, buyers should look closely at interest rates.

Financial institutions charge interest to cover the costs of loaning money when they offer you a mortgage. The interest rate they charge is influenced by the Federal Reserve, though mortgage-backed securities in the secondary mortgage market are considered to be a key driver, as well.

When interest rates are low, borrowing money is less expensive for the borrower. As interest rates rise, borrowing money becomes more costly. The government increased the rate in September 2026.

But keep in mind that the rate and terms you qualify for will depend on financial factors including your credit score, down payment, and loan amount.

And, if interest rates go down after you purchase your home, you can always choose to refinance your mortgage in hopes of getting a lower rate.

💡 Quick Tip: A home equity line of credit gives you the flexibility to spend what you need when you need it — you only pay interest on the amount that you spend. And the interest rate is lower than most credit cards.

Timing the Real Estate Market

Essentially, to time any market, you want to aim to buy low and sell high. If you’re going to buy a property, you’ll want to ideally buy when there are more sellers than there are buyers — a buyer’s market.

In a buyer’s market, buyers have an abundance of homes to choose from. This may also give you leverage to ask for more concessions from sellers eager to close a deal, such as a seller credit toward your closing costs or help covering the cost of repairs.

Conversely, in a seller’s market, real estate inventory is low and demand is high, which may drive up home prices.

To identify the current market conditions check local housing market trends by city or visit real estate websites to look at inventory in your area or ZIP code.

Typically, it’s a buyer’s market if you see more than seven months’ worth of inventory.

If you see five to seven months of inventory, you’re in a balanced market that isn’t especially beneficial to buyers or sellers.

It’s a seller’s market when there is less than five months’ worth of inventory.

Recommended: How Does Housing Inventory Affect Buyers & Sellers?

Understanding Local Economics and Trends

Because prices can vary vastly from area to area, real estate is often considered a location-driven market. This means that general rules of thumb might not be valid in every region or city.

Also, local economics may play a role in housing demand. For instance, if a large company decides to move its operations to a city, that city may experience a housing boom that creates a spike in home prices. The cost of living might correlate with home prices, but even if it doesn’t, it is a good idea to consider it because insurance, utilities, and groceries will also play a role in your budget.

Hopeful buyers will want to pay close attention to the economic happenings and housing trends in their desired location.

The Takeaway

If you find a home that seems right for you, your employment is stable, and you can get a home loan with a good interest rate, buying may make sense. Then again, with interest rates and home prices still being on the high side, comparing the costs of renting and buying may be called for.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Should I buy a house before rates drop?

House prices are predicted to remain relatively flat in the coming year, while mortgage rates aren’t forecast to drop below 6.00% for at least the next couple years. So if you need to buy and can find a property you like at a good price in this market, it may make sense to go ahead and buy before rates drop. After all, if you get a mortgage now and rates go down considerably, you can consider refinancing to get the benefit of the lower rate.

What time of year is it cheapest to buy a house?

Generally speaking, you may be able to get the cheapest deal on a house in the winter. That’s because winter tends to be the slowest season for home sales and that may give you some leverage to bargain with homeowners who are in a hurry to sell. Of course, prevailing market conditions at the time will also play into how good a price you can get.

Is it better to buy a house during a recession?

There may be advantages and disadvantages to buying a house during a recession. The house price and the interest rates are likely to be lower than they might be when the economy is stronger. However, your individual financial position and job security may not be as strong during a recession, which can lead to financial stress.

---

About the author

---

This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOHL-Q426-131

Read more

If you’re a homeowner considering a range of home improvements, you may not know if what you’re planning is a renovation or a remodel. Does it matter? Yes, because there are key differences.

A renovation is an update of an existing room or structure, while a remodel affects the design and purpose of an area. The more extensive work in a remodel will influence the cost and length of your project, which may in turn affect whether you need a home equity loan or other form of financing for your project.

What Is a Renovation?

During a renovation, one or more rooms are updated and repaired. This might include new cabinets, flooring, and paint, for instance.

The bones of the room are typically left intact, though some structural issues may be fixed in a renovation, such as replacing rotting wood or swapping out window frames suffering from water damage.

A kitchen renovation might include replacing appliances, faucets, and knobs, while a bedroom reno might call for paint, new rugs, or new lighting.

Bathroom renovations often involve installing new tile, towel racks, and faucets.

Recommended: Home Improvement Cost Calculator

Advantages of a Renovation

Renovations are typically less costly than remodels, thanks to several factors.

You Can DIY

If you’re handy, you can slash some of the cost of hiring someone to undertake your renovation by doing some of the work yourself.

Because most renovations don’t require structural changes, you likely won’t need to hire licensed professionals to get it done. That means anything that you’re capable of — painting, wallpapering, floor sanding — you can do and pocket what it would have cost to hire help.

Just make sure you are skilled enough; hiring a professional to redo what you couldn’t complete may cost you money you didn’t plan on spending.

You May Get a Better Return on Investment

Since a renovation doesn’t call for major expenses like hiring licensed professionals or other construction-related outlays, in some cases the project offers more bang for the buck than a remodel does.

Renovation-related tweaks will still improve the look and feel of your home, and thus may increase the value of your house on a future home appraisal, without the major expense a remodel entails.

You Can Expect Fewer Hidden Costs

When you’re renovating a room, your action plan is pretty cut and dried, and there aren’t likely to be surprises that require you to spend more than you planned.

Not so with a remodel, which, due to its scope, may result in additional costs to fix unforeseen problems such as hidden water damage, termites, or asbestos. These surprises can also lengthen the time of your project.

What Is a Remodel?

Remodels are typically more extensive than renovations. They include altering the function and sometimes the structure of an area of the house.

If your project calls for tearing down or adding walls, or changing the layout of a room, you’re planning a remodel.

Some examples of remodels: changing a powder room into a laundry room, knocking down a wall between a dining room and kitchen to create a great room, building an addition to your existing home, or expanding a closet into a dressing room.

Even if you’re not tearing down or adding walls, your project may be a remodel. This might include moving kitchen appliances around to improve room flow for a kitchen remodel, tearing out a tub and installing a walk-in shower in a bathroom, or turning a small guest bedroom into a home office.

Advantages of a Remodel

Many homeowners find there are pluses to a remodel as opposed to a renovation.

You Have the Opportunity to Customize Your Home

As homeowners grow with their home, they may find that their needs change.

Some may want an addition to accommodate an aging parent, while others may have expanded their families and need to convert a home office into a nursery or finish an attic and turn it into a bedroom. Empty-nesters may want to use one of their bedrooms as a study or gym.

A remodel affords them more options than a renovation does because they can make the necessary changes — however major — to achieve their needs.

You May Experience Hidden Benefits

Adding an island to a kitchen and removing a wall to create a larger space might mean more than increased room to prepare meals. You may find your family spends more time together in rooms that are spacious and inviting.

Similarly, retrofitting your heating and cooling system, adding under-floor heating, and replacing insulation might result in lower utility bills, freeing up money for hobbies or vacations.

Recommended: Guide to Buying, Selling, and Updating Your Home

Why a Remodel May Cost More Than a Renovation

All of that means remodels are costlier than renovations. Here’s why.

You May Need Permits

Thanks to the extensive nature of most remodels, many cities require homeowners to secure a permit before they begin work, especially if the project involves creating an addition to the home, or if new walls or new roofs are being installed. This is to ensure that building codes are followed.

If you need permits, you will want to factor in the time it takes to secure them into your timeline. Once the permits are approved, the project may begin. And once it is completed, it will likely need to be approved by a local inspector.

You May Need Professional Help

If your remodel requires electrical, duct, or plumbing work, you will likely need to hire a licensed professional to complete it.

You may also need a general contractor to hire and oversee these workers and others for larger remodels like adding a guest suite to the home or converting an attic to a home office with an en-suite bathroom.

These vendors, while necessary, can be costly since you are paying for their time in addition to any materials.

You May Be Dealing With Construction

While it can be exciting to imagine what your home will look like after a remodel, getting there can be taxing. That’s because you may be living in a construction zone while the project is underway.

It can be difficult to have to eat multiple takeout meals because your kitchen is being worked on, or deal with dust from work being done in the next room over.

If their remodel is especially extensive, some homeowners find they need to rent a home nearby until the remodel has been completed.

Paying for a Remodel or Renovation

Whether you’re undertaking a renovation or remodel, you’ll want to have a budget and a payment plan. Some renovations are small enough that homeowners can pay upfront.

Those tackling remodels and larger renovations might tap a home equity loan or home equity line of credit, in which the home is used as collateral. (Your equity is the value of your home minus whatever you owe on your home loan and any other loans that use your home as collateral.)

A home equity loan lets you borrow a set amount of money based on your equity in the home. You start paying it back in regular payments immediately, and if you don’t or can’t, you risk foreclosure. If you have a relatively solid sense of what your remodel will cost and are sure you can afford the added monthly payments, this could be a good option. Home equity loans, also known as HELOANs, tend to have fixed interest rates, which makes your monthly payment amount predictable.

A home equity line of credit (HELOC) also draws on your home equity but offers more flexibility. Instead of getting the entire amount you wish to borrow at once, you can access a revolving line of credit (up to a set maximum) and draw from that when you need it, paying interest only on what you’ve taken out. Usually the HELOC draw period (the time during which you can pull out funds) lasts for a number of years, which should cover even lengthy remodels. However, when the draw period is over, your payments of principal and interest will depend on what you’ve taken out, so they can be less predictable than home equity loan payments — especially because HELOCs tend to have variable interest rates. And if you default, you could lose your home.

How to get a HELOC or home equity loan is fairly simple. Be prepared to provide information on your income and debts, a copy of your government I.D., and a recent tax form. You can get an estimate of your borrowing power and costs in minutes by filling out an online form with a potential lender.

Recommended: Home Equity Loans vs Personal Loans for Home Improvement

The Takeaway

Undertaking home improvements can be exciting for homeowners. But before you embark on a project, know whether you’re looking at a renovation or a remodel, how much inconvenience you’re prepared to put up with, and what you are willing to pay.

SoFi offers both home equity loans and home equity lines of credit (HELOCs) to help you leverage your home's value. Access up to 85% of your equity (up to $750,000), to fund renovations, consolidate high-interest debt, or cover significant expenses. Both options offer competitive rates compared to other loan types. Plus, you’ll be paired with a dedicated SoFi Mortgage Loan Officer who can help you find the right fit for your needs.

Unlock your home’s value with a home equity loan or HELOC from SoFi.

FAQ

What is the difference between a remodel and a renovation?

A renovation involves making minor updates and/or repairs to an area in your home. A remodel is larger in scope and can include making structural changes to your house, like taking down walls or adding new rooms. Typically, a remodel is more expensive than a renovation.

How much does it cost to remodel vs. renovate?

A remodel is typically more extensive than a renovation and generally requires professional help, so it’s a more expensive proposition, potentially costing thousands or even tens of thousands of dollars. A renovation is usually more limited in scope and may be largely cosmetic, meaning that if you’re handy, you may be able to do much of it yourself, which can keep the cost much lower

Is painting considered a renovation?

Yes, painting walls or cabinets in your house is generally thought of as a renovation, since it’s essentially cosmetic, rather than a structural change. Other common renovations include installing a smart or programmable thermostat, changing light fixtures, replacing cabinet hardware, and putting in a bathroom vanity or new faucets.

---

This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOHE-Q426-070

Read more

Cash and cash equivalents (CCE) are the most liquid assets a business owns. The term refers to money on hand and short-term, highly liquid investments that can be converted into known amounts of cash with little risk of losing value. Cash equivalents typically have an original maturity of three months or less.

In business accounting, CCE helps show whether a company has enough readily available funds to pay its immediate bills, cover daily operating expenses, and handle unexpected costs without borrowing money.

The concept also applies to personal finance, although individuals don’t typically use the formal accounting term. Checking and savings accounts, along with certain short-term investments, can provide readily accessible funds for everyday expenses and emergencies. Understanding which assets are liquid and how quickly you can access them can help you assess your financial safety net.

Here’s a closer look at what cash and cash equivalents mean, which assets may qualify, and how they differ from other types of assets.

What Are Cash and Cash Equivalents?

Cash and cash equivalents are assets that provide ready access to cash. Cash includes physical currency and funds available for immediate use, such as money in a checking account or high-yield savings account. Cash equivalents are short-term, highly liquid investments that can be converted into known amounts of cash quickly, with minimal risk of changes in value.

The distinction is especially important in business accounting, where cash and cash equivalents help show how much money a company has available to meet short-term obligations. In personal finance, the same concept can help you assess how much money you can access to cover everyday expenses or unexpected costs without having to sell other assets.

Difference Between Cash and Cash Equivalents

The primary difference is that cash is already available to spend, while cash equivalents are short-term investments that can be converted into cash quickly and with minimal risk.

For example, money in a checking or savings account is generally considered cash. A qualifying short-term Treasury bill or commercial paper investment may be considered a cash equivalent under accounting rules. A CD may also qualify if it meets the relevant maturity and liquidity requirements.

For personal finances, the distinction is often less important than knowing how quickly you can access your money, whether withdrawals come with penalties, and whether the account or investment could lose value.

How Do Cash Equivalents Work?

Cash equivalents are designed to provide liquidity while maintaining a relatively stable value. Under U.S. accounting rules, they generally must be readily convertible into a known amount of cash and have such a short time until maturity that the risk of value changes due to interest rate movements is insignificant. Generally, the investment’s original maturity must be three months or less. The original maturity is what matters — not how much time remains before an investment matures.

For example, a company that purchases a three-month Treasury bill may classify it as a cash equivalent. However, a company that originally purchased a three-year Treasury note generally cannot reclassify it as a cash equivalent simply because the note now has three months remaining until maturity.

Cash equivalents are typically easy to sell or redeem, and their value is relatively predictable. However, not every short-term investment qualifies. The asset must meet the applicable accounting criteria.

How To Identify Cash Equivalents on a Balance Sheet

A company’s balance sheet typically lists cash and cash equivalents under current assets, which are assets expected to be used, sold, or converted into cash within the normal operating cycle or within one year.

The CCE line item may include:

•   Cash on hand and demand deposits

•   Qualifying short-term U.S. Treasury bills

•   Certain money market fund holdings

•   Qualifying commercial paper and other short-term investments

Companies may present cash and cash equivalents as one combined line item or provide additional details in the notes to their financial statements. The notes may explain which assets the company includes in CCE and whether any cash is restricted.

For investors and analysts, the CCE balance can help indicate how much immediately available liquidity a company has. However, it doesn’t tell the whole story of a company’s financial health. Its debts, other current assets, operating cash flow, and upcoming obligations also matter.

Types of Cash Equivalents

Cash equivalents are short-term, low-risk savings tools or investments that can be quickly converted into cash. Examples include certain CDs, U.S. Treasury Bills, money market funds, and commercial paper. Whether an asset qualifies depends on its maturity, liquidity, and risk.

Certificates of Deposit (CDs)

A CD is a deposit account that typically pays a fixed interest rate in exchange for keeping money deposited for a specified period. Terms can range from a few months to several years.

Unlike a standard savings account, a traditional CD generally restricts access to the money until maturity. Withdrawing funds early often triggers a penalty, although some no-penalty CDs allow earlier withdrawals under specified conditions.

CDs issued by federally insured banks are generally FDIC-insured up to applicable limits. However, not every CD qualifies as a cash equivalent under accounting rules. A CD is generally considered a cash equivalent only if its original term from the day you bought it was three months or less, and it has no severe early-withdrawal penalties or restrictions.

Either way, CDs can be useful for personal savings and overall money management when you can leave the money untouched for a set period. Before opening one, it’s wise to compare interest rates, maturity dates, early withdrawal penalties, and minimum deposit requirements.

US Treasury Bills

U.S. Treasury securities are debt instruments issued by the federal government. Treasury bills (T-bills) are short-term securities with original maturities of up to 52 weeks. Common terms include four, six, eight, 13, 17, 26, and 52 weeks.

T-bills are backed by the U.S. government and are generally considered to have very low credit risk. Those with an original maturity of three months or less may qualify as cash equivalents under accounting rules.

Treasury notes and bonds have longer original maturities. Treasury notes generally mature in two to 10 years, while Treasury bonds typically mature in 20 or 30 years. These longer-term securities are not classified as cash equivalents if their remaining maturity as of the purchase date exceeds three months, even if they later have less than three months remaining until maturity.

Treasury securities can generally be sold before maturity in the secondary market, but their market prices can fluctuate. If sold before maturity, an investor may receive more or less than the purchase price. For personal finance, it’s important to distinguish between a security’s low credit risk and the possibility of losing money if you sell it before maturity.

Recommended: How to Buy Bonds

Other Government Bonds

State and local governments may issue short-term debt securities, including municipal notes. However, not all government-issued securities qualify as cash equivalents.

To qualify under accounting rules, a security generally must meet the requirements for short maturity, ready convertibility, and minimal risk of changes in value. Longer-term municipal bonds may fluctuate in market value and are typically classified separately from cash equivalents.

Individuals considering government debt securities will also want to understand the issuer’s credit risk, the security’s maturity, its market liquidity, and any tax implications.

Money Market Funds

Money market funds are mutual funds that invest in short-term debt securities, cash, and cash equivalents. They seek to maintain liquidity and relatively stable share prices, and they may pay returns based on any income earned by the fund’s holdings.

Money market funds are commonly used to hold cash within brokerage accounts. They generally qualify as cash equivalents because they are short-term, highly liquid, and carry a very low risk of changing in value.

It’s important to note that money market funds are not the same as money market deposit accounts. They are investments, not bank deposit accounts, and are not insured by the Federal Deposit Insurance Corporation (FDIC). Although eligible brokerage assets may receive limited protection from the Securities Investor Protection Corporation (SIPC) if a brokerage firm fails, SIPC does not protect against investment losses. Money market funds can lose value, even though they are generally considered relatively low risk compared with many other investments.

Before choosing a money market fund, it’s important to review its holdings, expenses, yield, and redemption terms. Different types of money market funds may have different risk profiles.

Recommended: Money Market vs. Capital Market

Commercial Paper

Commercial paper is a short-term debt instrument issued by a corporation, often to cover expenses such as payroll, inventory, and other operating costs. It typically matures within 270 days and may be issued at a discount or pay interest.

Certain commercial paper can qualify as a cash equivalent if it has an original maturity of three months or less, can readily be converted into a known amount of cash, and carries an insignificant risk of changes in value.

Commercial paper is not the same as a bank deposit. Its safety depends in part on the issuer’s ability to repay the debt, and it generally does not have FDIC insurance. For that reason, evaluating the issuer’s creditworthiness and the paper’s liquidity is important when deciding if it’s a suitable short-term investment.

What Assets Are Excluded From Cash Equivalents?

Not every asset that can be sold or converted into cash quickly qualifies as a cash equivalent. Under accounting rules, an asset generally must be highly liquid, convertible into a known amount of cash, and subject to minimal risk of value changes. It also generally must have an original maturity of three months or less.

Assets that are typically excluded from cash equivalents include:

•   Stocks and stock funds: Their market prices fluctuate, and their value isn’t guaranteed.

•   Most bonds and longer-term Treasury securities: They may be easy to sell, but their prices can change with interest rates and market conditions.

•   Longer-term CDs: CDs with original maturities beyond three months generally don’t meet the accounting definition of cash equivalent.

•   Real estate: Selling property usually takes time, and the sale price isn’t certain.

•   Cryptocurrency: Prices can be highly volatile, and converting cryptocurrency into cash may involve market, liquidity, and transaction risks.

•   Restricted cash: Funds that a company cannot freely access or use may need to be reported separately, depending on the nature of the restriction.

•   Accounts receivable: Money owed by customers is generally a separate asset because the business must collect the amounts due rather than access the funds immediately.

Cash and Cash Equivalents vs Short-Term Investments

Cash equivalents and short-term investments both can help a business manage its money, but they differ in liquidity, maturity, and exposure to changes in value.

Cash equivalents are generally short-term, highly liquid investments with original maturities of three months or less and minimal risk of changes in value. Short-term investments, by contrast, may include marketable securities that a company expects to sell or that will mature within a year. Depending on the circumstances, they may include Treasury securities, corporate bonds, or other marketable investments.

Short-term investments may offer higher potential returns than cash equivalents, but they can also carry greater interest rate, credit, or market risk. A company may report them separately on its balance sheet to distinguish assets that are readily available from those that may take longer to convert into cash or may fluctuate in value.

For individuals, the same general distinction can help with financial planning. Money needed for immediate bills or emergencies is often best kept in accessible accounts, while funds intended for a later goal may be held in other short-term instruments. The right choice depends on when the money will be needed, how much risk is acceptable, and whether early access could involve penalties or losses.

The Takeaway

Cash and cash equivalents are a key measure of a company’s short-term liquidity. In accounting, the term generally refers to cash and highly liquid investments with original maturities of three months or less and minimal risk of changes in value.

For individuals, the broader concept can be useful when deciding how much money to keep readily accessible for everyday expenses and emergencies. Knowing how cash, cash equivalents, and short-term investments differ can help you clearly assess your overall cash flow, access to funds, and any potential risks.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, named the #1 Bank in the U.S. for the fourth year in a row by Forbes (2026).* Enjoy up to 3.30% APY on SoFi Checking and Savings.

FAQ

What are some examples of cash and cash equivalents?

Examples of cash include physical currency and funds in checking accounts. Cash equivalents may include Treasury bills, qualifying commercial paper, and certain money market fund holdings. To qualify as a cash equivalent under accounting rules, an investment generally must have an original maturity of three months or less, be readily convertible into a known amount of cash, and carry minimal risk of changes in value.

Are Treasuries considered cash equivalents?

Some Treasury securities qualify as cash equivalents, but not all. Treasury bills with original maturities of three months or less may qualify if they meet the other accounting requirements. Treasury notes and bonds generally don’t qualify because their original maturities are longer. A Treasury security doesn’t automatically become a cash equivalent simply because it has three months or less remaining until maturity.

How is restricted cash handled on a balance sheet?

Restricted cash refers to funds a business cannot freely use for general operating expenses because of contractual, legal, or other restrictions. Depending on the circumstances, a company may report restricted cash separately from cash and cash equivalents or disclose it in the financial statement notes. The balance sheet classification depends partly on the nature and duration of the restriction.

Why are cash and cash equivalents important for a business?

Cash and cash equivalents help businesses assess their short-term liquidity and ability to meet immediate financial obligations, such as payroll, supplier payments, and other operating expenses. Tracking these assets can help a company manage cash flow, prepare for unexpected costs, and determine whether it may need additional financing. The CCE balance is one measure of financial health, but it should be considered alongside liabilities, operating cash flow, and other financial information.

Do cash equivalents lose value during inflation?

Cash equivalents generally aim to preserve their nominal value, but inflation can reduce their purchasing power over time. For example, if the prices of goods and services rise faster than the interest earned on a cash equivalent, the money may buy less in the future. Some cash equivalents can also lose value if market conditions change.

---

This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2026 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOBNK-Q426-144

Read more

Home equity financing lets a homeowner borrow against the equity in their property. The term can refer broadly to several types of home equity borrowing, including a fixed-rate home equity loan, a home equity line of credit (HELOC), and a cash-out refinance.

The answer to what types of home equity financing are available generally includes these three options:

•   Fixed-rate home equity loan: Provides a lump sum with a fixed interest rate and predictable payments.

•   HELOC: Provides a revolving line of credit that the borrower can use as needed, usually at a variable interest rate.

•   Cash-out refinance: Replaces the existing mortgage with a larger mortgage and gives the borrower the difference in cash.

The right choice depends on the amount and timing of the cash needed, the borrower’s current mortgage interest rate, comfort with payment changes, and total borrowing costs.

How the Three Options Compare

A home equity loan and a HELOC are additional loans on top of your mortgage loan that are secured by the home. A cash-out refinance replaces the current mortgage with a new loan.

Feature	Fixed-rate home equity loan	HELOC	Cash-out refinance
Access to funds	One lump sum	Withdrawals as needed up to a credit limit	One lump sum from a new mortgage
Interest rate	Usually fixed	Usually variable, although some products may offer fixed-rate conversion options	Usually fixed or adjustable, depending on the new mortgage
Payments	Fixed principal-and-interest payments	Payments can change based on the balance and interest rate	Payments follow the terms of the new mortgage
Draw period	None	Usually a set draw period, often 10 years	None
Existing mortgage	Stays in place	Stays in place	Replaced by the new mortgage
Number of mortgage- related payments	Existing mortgage plus home equity loan payment	Existing mortgage plus HELOC payment	Usually one new mortgage payment
Common use	One-time, known expense	Ongoing or uncertain expenses	Large cash need when refinancing also makes financial sense
Main risk	The home secures the loan	The home secures the line, and payments may change	The home secures the larger replacement mortgage

Home Equity Loan vs HELOC

The difference between a home equity loan and a line of credit is the way the borrower receives and repays the funds:

•   A home equity loan provides the full approved amount at closing. The borrower typically makes equal monthly payments at a fixed interest rate.

•   A HELOC provides a credit limit. The borrower can withdraw money during the draw period and generally pays only interest on the outstanding balance.

A home equity loan may suit a borrower who knows the exact amount needed and wants predictable payments. A HELOC may suit a borrower whose costs will occur over time or remain uncertain.

Refinance vs Home Equity Loan

The difference between a refinance and a home equity loan is what happens to the existing mortgage:

•   A home equity loan is a second loan. The borrower keeps the current mortgage and adds a separate payment.

•   A cash-out refinance pays off the current mortgage and replaces it with a new, larger mortgage. The borrower receives the difference between the new loan amount and the old mortgage balance in cash.

A home equity loan may be preferable when the existing mortgage has a low interest rate. A cash-out refinance may make sense when the borrower wants one mortgage payment and can qualify for a lower interest rate.

Cash-Out Refinance vs Home Equity Loan

A cash-out refinance and a home equity loan both provide a lump sum secured by the home. Their interest rate, payment, and closing-cost structures can differ:

•   A cash-out refinance offers one consolidated mortgage payment and usually a longer repayment term.

•   A home equity loan leaves the existing mortgage unchanged but creates a second payment.

•   A cash-out refinance may be more attractive when the borrower can qualify for a lower interest rate.

•   A home equity loan avoids replacing a low-rate first mortgage, but the second loan will have a different interest rate, fees, and repayment term.

When deciding between the two options, compare your new mortgage payment, existing mortgage payment, home equity loan payment, closing costs, and total interest over the full repayment period.

How Much Can a Homeowner Borrow?

The amount available usually depends on the home’s value, the current mortgage balance, the requested loan amount, credit history, income, and the lender’s maximum combined loan-to-value ratio.

Calculating CLTV

Combined loan-to-value ratio, or CLTV, compares all loans secured by the home with the property’s appraised value:

CLTV = (Current mortgage balance + New loan or line amount / Appraised home value) x 100

Many lenders set a maximum CLTV, often up to 85%, although the limit depends on the lender, equity borrowing option, property, and borrower. A home equity loan calculator can help estimate potential borrowing capacity. It works similarly to the home affordability calculator used during the home-buying process.

Fixed-Rate Home Equity Loans

A fixed-rate home equity loan provides a lump-sum payment that the borrower repays over a set period. The interest rate and scheduled principal-and-interest payment generally remain the same for the life of the loan.

This structure answers the question how do home equity loans work differently from HELOCs: The home equity loan funds the entire amount at closing, while the HELOC allows multiple withdrawals during its draw period.

Fixed-rate home equity loans often have terms ranging from five to 30 years. The loan usually must be paid in full if the home is sold.

Home Equity Loan Example

Suppose a borrower needs $24,000 for a $20,000 garage addition and a $4,000 medical bill. A $24,000 home equity loan would provide the full amount upfront. The borrower would then make scheduled monthly payments until the balance is repaid.

A fixed-rate home equity loan may be suitable for:

•   A renovation with a known price

•   Debt consolidation

•   A major one-time expense

•   A borrower who wants predictable monthly payments

•   A homeowner who wants to keep their current mortgage with a low interest rate

The borrower should ask lenders about closing costs, appraisal fees, and other third-party charges before accepting an offer.

Recommended: What Is a Fixed-Rate Mortgage?

HELOCs

A HELOC is revolving debt, much like a credit card. The lender approves a credit limit, and the borrower can withdraw funds as needed during the draw period. As the borrower repays principal, that amount generally becomes available again.

Draw and Repayment Periods

A HELOC usually has two stages:

•   Draw period: The borrower can access funds up to the credit limit. This commonly lasts 10 years. (The draw period for a SoFi heloc is 3 years.)

•   Repayment period: The borrower can no longer withdraw funds and repays the outstanding balance over a specified period.

For example, a 30-year HELOC could have a 10-year draw period followed by a 20-year repayment period. Depending on the agreement, the borrower may make interest-only payments during the draw period or payments toward both principal and interest.

HELOC Example

Suppose a borrower has a $10,000 HELOC and initially withdraws $7,000. The borrower has $3,000 of available credit. If the borrower pays $5,000 toward the principal, the available credit may increase to $8,000 during the draw period.

A HELOC may suit a borrower who needs money for an ongoing project, such as home improvements. Other potential uses include education expenses, wedding costs, and business startup costs.

How HELOC Interest Rates Work

A HELOC generally has a variable interest rate that can change with market conditions. The monthly payment can change when the interest rate changes or when the balance changes.

During the draw period, the borrower pays interest on the amount withdrawn. During repayment, the borrower pays principal and interest on the balance and typically cannot withdraw additional funds.

A HELOC interest-only calculator can help you compare interest-only payments with payments that reduce the principal balance.

Cash-Out Refinancing

Mortgage refinancing replaces an existing mortgage with a new loan. A cash-out refinance increases the new mortgage balance above the amount owed on the current mortgage and provides the difference to the borrower in cash. More information about the mechanics appears in How Cash-Out Refinancing Works.

Cash-Out Refinancing Example

Suppose a home is appraised at $400,000 and the homeowner owes $200,000 on the mortgage. If the homeowner needs $30,000 for repairs, a cash-out refinance could replace the current mortgage with a $230,000 mortgage, subject to lender approval and applicable costs. The borrower would receive the $30,000 difference in cash.

A cash-out refinance may suit someone who:

•   Needs a large lump sum

•   Wants one consolidated mortgage payment

•   Believes the new mortgage interest rate or repayment term would be better than the current one

•   Has enough equity and income to qualify for the larger mortgage

Common refinancing goals include:

•   Securing a lower interest rate

•   Changing the repayment term

•   Lowering the monthly payment

•   Accessing cash for a major expense

A longer repayment term can lower the monthly payment while increasing total interest over the life of the loan. A cash-out refinance also has closing costs and may have higher upfront costs than a home equity loan.

Advantages and Disadvantages

Potential cash-out refi advantages:

•   Provides a lump sum of cash

•   May provide a lower mortgage interest rate

•   Can change the repayment term

•   Usually creates one mortgage payment

Potential cash-out refi disadvantages:

•   Replaces the existing mortgage

•   May eliminate a favorable current interest rate

•   Adds debt secured by the home

•   Requires closing costs

•   May increase total interest or extend the repayment period

Fees, Rates, and Tax Considerations

Home equity loans and HELOCs may include closing costs and fees. These costs can range from 1% to 5% of the loan amount, although the amount and structure vary by lender and product.

HELOCs may have ongoing charges such as:

•   Annual fees

•   Transaction fees

•   Inactivity fees

A lender generally provides disclosures for certain fees, including application fees, discount points, annual account fees, and transaction fees. Borrowers should ask about other charges, such as returned-payment fees, before signing the agreement. The Consumer Financial Protection Bureau provides a loan estimate explainer to help borrowers review loan terms and fees.

Comparing Interest Rates

Home equity loan interest rates are often lower than rates for unsecured borrowing because the home secures the debt. The rate may still differ from the borrower’s first-mortgage rate, personal loan rate, credit card rate, or HELOC rate.

When comparing rates, make sure you review:

•   The APR, or annual percentage rate, which includes the interest rate plus lender fees

•   Whether the interest rate is fixed or variable

•   The length of the repayment term

•   The total interest over the loan term

•   Closing costs and recurring fees

A lower interest rate does not always produce the lowest total cost if it comes with higher fees or a longer repayment period. Current market conditions, the borrower’s credit profile, the CLTV, and the loan type all affect the offer. Borrowers can review current home equity loan rates when beginning the comparison.

Tax Treatment

Interest on a home equity loan or HELOC may be deductible when the borrowed funds are used to buy, build, or substantially improve the home securing the loan. Tax treatment depends on the borrower’s circumstances and applicable tax rules. A tax professional can explain how the loan may affect a specific tax return.

Comparing Offers

To compare home equity loan offers from different lenders, borrowers should review the full cost and payment structure rather than comparing the advertised interest rate alone.

A useful checklist includes:

1.    Compare APR and interest rate. The APR includes certain fees beyond the stated interest rate and can help you understand the full cost of borrowing.

2.    Review fixed versus variable rates. A fixed-rate home equity loan provides more predictable payments. A variable-rate HELOC can change over time.

3.    Add all fees. Include origination fees, appraisal charges, application fees, annual fees, transaction fees, and closing costs.

4.    Check the loan amount and CLTV limit. Confirm that the lender’s maximum borrowing amount meets your needs.

5.    Compare repayment terms. A longer term may reduce the monthly payment but increase total interest.

6.    Review HELOC payments. Check the payment during the draw period and the expected payment during repayment.

7.    Ask about penalties and recurring charges. Review prepayment terms, annual fees, and inactivity fees.

8.    Consider the existing mortgage. A home equity loan or HELOC leaves the first mortgage in place. A cash-out refinance replaces it.

9.    Compare total repayment costs. Calculate the interest and fees over the expected time the debt will remain outstanding.

10.    Confirm how payments are calculated. Ask whether payments include principal and interest, and whether a HELOC payment can change.

The lender’s interest rate quote, loan estimate, or comparable disclosure should provide the figures needed for this review. Borrowers should ask each lender for the same loan amount and repayment term to make offers easier to compare.

Qualification Requirements

Lenders typically review the borrower’s equity, credit profile, income, debts, and payment history. Requirements vary by lender and type of home equity product.

An application may require:

•   Proof of income, such as pay stubs, tax returns, or bank statements

•   Information about the existing mortgage and other debts

•   Permission to review your credit history and credit score

•   Documentation of homeowners insurance

•   Property details and an appraisal or other valuation

•   Evidence of a reliable repayment capacity

•   Information about your payment history and recent delinquencies

Many lenders look for at least 20% equity after accounting for the new loan, a credit score of at least 620, and a debt-to-income ratio no higher than 43%. These figures are general benchmarks, not universal requirements. A lender may apply different standards based on the loan type, property, your income, credit history, and CLTV.

The borrower’s home secures the debt. If the borrower cannot make the required payments, the lender could begin foreclosure proceedings.

Recommended: How Does a HELOC Affect Your Credit Score?

Choosing an Option

A fixed-rate home equity loan may make sense when:

•   The borrower needs a known amount upfront.

•   The current mortgage interest rate is low.

•   Predictable payments fit your budget.

•   The expense is one-time or has a defined cost.

Potential uses include consolidating high-interest debt, paying for a major renovation, or covering a large purchase.

A HELOC may be appropriate when:

•   The borrower needs funds over multiple stages.

•   The total cost is uncertain.

•   The borrower wants to withdraw only what is needed.

•   The borrower can manage a variable rate and changing payments.

A cash-out refinance may be worth considering when:

•   The borrower needs a large lump sum.

•   The existing mortgage interest rate is high.

•   The new mortgage rate and term may improve your financial profile.

•   One consolidated mortgage payment is a priority.

Before choosing, the borrower should compare the new debt with the existing mortgage and assess whether the monthly payments remain affordable if rates or expenses change.

The Takeaway

The three main types of home equity financing are:

1.    Fixed-rate home equity loans

2.    Home equity lines of credit (HELOCs)

3.    Cash-out refinances

A fixed-rate home equity loan provides one lump sum with predictable payments. A HELOC provides flexible access to funds, but the interest rate and payment amount can change. A cash-out refinance replaces the current mortgage with a larger mortgage and provides cash from the difference.

All three options use the home as collateral. The borrower should compare the APR, fees, repayment term, payment structure, CLTV, and total repayment cost before applying.

SoFi offers both home equity loans and home equity lines of credit (HELOCs) to help you leverage your home's value. Access up to 85% of your equity (up to $750,000), to fund renovations, consolidate high-interest debt, or cover significant expenses. Both options offer competitive rates compared to other loan types. Plus, you’ll be paired with a dedicated SoFi Mortgage Loan Officer who can help you find the right fit for your needs.

Unlock your home’s value with a home equity loan or HELOC from SoFi.

FAQ

What is the downside of a home equity loan?

The primary downside is that the home secures the debt. If the borrower cannot make the payments, the lender could pursue foreclosure. A home equity loan also provides a lump sum. Borrowers who are unsure how much they need may prefer the flexibility of a HELOC, provided they can manage a variable interest rate and changing payments.

How much does a $50,000 home equity loan cost?

The exact cost depends on the interest rate, loan term, fees, and lender. For example, a $50,000 loan at a 7.50% interest rate with a 10-year repayment term would have an estimated monthly payment of $594 and total interest of $21,221 over the life of the loan, before fees.

Can you use a home equity loan for anything?

A home equity loan can typically be used for many purposes. Common uses include:

•   Consolidating higher-interest debt

•   Paying medical bills

•   Funding major home repairs or upgrades

•   Covering a large purchase

Because the home is collateral, the intended use should justify the risk and repayment cost.

How do I qualify for a home equity loan?

A borrower generally needs sufficient home equity, acceptable credit, manageable debt, reliable income, and a history of making payments on time. The lender may also review your:

•   Credit score and credit report

•   Debt-to-income ratio

•   Mortgage balance and CLTV

•   Proof of income

•   Homeowners insurance

•   Property value

•   Recent payment history

Requirements vary by lender. A borrower should confirm the lender’s minimum equity, credit score, income, and debt-to-income ratio requirements before applying.

What is the difference between a HELOC and a cash-out refinance?

A HELOC is a revolving line, similar to a credit card, that is secured by your home. The borrower can withdraw funds up to a set limit during the draw period, then repay the outstanding balance during the repayment period. The existing mortgage remains in place.

A cash-out refinance replaces the existing mortgage with a new mortgage for more than the borrower currently owes. The borrower receives the difference as a lump-sum cash payment and repays the new mortgage under its terms.

---

This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.

SOHE-Q326-071

Read more