How to Get Equity Out of a Paid-Off Home

Can I Get a Home Equity Loan on a Paid-Off House?

Yes, you can get a home equity loan on a paid-off house, as long as you meet the lender requirements to qualify for one.

A home equity loan allows you to borrow against your home's value and receive a lump sum of money you can use for just about any purpose. You may find a lower interest rate on a home equity loan than with other finance options because your paid-off home serves as collateral on the loan. Of course, the trade-off is that you could lose your home to foreclosure if you fail to make your monthly payments.

Tip: It's generally not a good idea to get a home equity loan and risk your home for a vacation or a purchase that will depreciate. It may be wiser to only borrow against your home for expenses that add value to your home or offer other long-term benefits.

How Much Equity Can I Use?

Even though you have 100% equity in your home, you won't be able to access all of it with a home equity loan. Lenders typically cap your maximum loan-to-value (LTV) ratio—the percentage of your home's value you're borrowing against—at 80% to 85%.

With a $0 mortgage balance, you may be able to borrow up to 85% of your home's value. Your borrowing limit may also depend on other factors, like your credit score, income and debt-to-income ratio.

Example: If your home is worth $400,000, you may be able to borrow as much as $340,000 ($400,000 x 85%).

Learn more: Home Equity Loans an Increasingly Popular Way to Tap Equity

How to Get Equity Out of a Home You've Paid Off

While selling your home is the most direct way to access your home's equity, you have several other options to tap into your home's value if you don't want to move.

Home Equity Loan

Home equity loans are fixed-rate installment loans that usually allow you to borrow up to 85% of your home's value, but some online banks and credit unions extend the cap to 100%. If approved, you'll receive a lump-sum payment, which you can use for home improvements, debt consolidation or any other purpose you choose.

Home equity loans come with terms ranging from five to 30 years and a fixed interest rate, so your monthly payments will never change. Like home equity lines of credit (HELOCs), home equity loans are considered second mortgages because they are the second lien (after your primary mortgage) against your property, which serves as collateral on the loan. But without an existing mortgage, these home equity loan products become the first lien against your property.

Learn more: Pros and Cons of Home Equity Loans

Home Equity Line of Credit (HELOC)

A HELOC is a revolving credit line that works like a credit card. You don't have to borrow a large sum. You can withdraw only what you need, up to your credit limit, and only pay interest on that amount. A HELOC might work well if you're paying for a project in stages, like a home renovation or add-on, because you can make multiple draws as needed.

HELOCs come with variable interest rates and a draw period, usually 10 years, during which you can make withdrawals on your line of credit as needed while making interest-only payments. Once the draw period expires, you'll enter a repayment period and make full interest and principal payments. You'll no longer be able to withdraw cash, and you'll either need to repay the loan—generally over 20 years—or refinance it.

Learn more: How Does HELOC Repayment Work?

Cash-Out Refinance

A cash-out refinance enables you to convert your home equity into cash. Typically, a cash-out refi involves replacing your current mortgage with a new, larger one and using the surplus as you wish. But if you own your home outright, there is no current mortgage to pay off, so you can receive the full amount you qualify for—usually up to 80% of your home's value—as cash. So, if your home is worth $400,000, you may be eligible to borrow up to $320,000.

You may benefit from a cash-out refinance if you need to borrow a large amount and also want to change your mortgage terms, such as lowering your interest rate or adjusting your loan length.

Reverse Mortgage

A reverse mortgage could provide you with cash using some of your home's equity as collateral. It's a way for retirees or older homeowners (age 62 or older) who want to stay in their home long term to access a portion of their home's equity as cash for everyday expenses. You can receive the cash as income, a line of credit or a lump sum.

One of the primary benefits of a reverse mortgage is that you don't have to repay it in monthly payments. Typically, the lender is repaid after you move out permanently or pass away, often by selling the home and using the proceeds to pay off the loan.

Tip: Closing costs for home equity loans, HELOCs, cash-out refinances and reverse mortgages can range from 2% to 6% of the loan amount, depending on the loan type. When doing your due diligence, add these costs to your calculations to make sure borrowing against your home is still worth it.

Pros and Cons of Borrowing Against Your Home

Tapping into your home's equity can help you cover an immediate financial need, but it also poses certain risks you need to consider first.

When Should You Use Home Equity on a Paid-Off Home?

Accessing home equity for cash could make sense if you're using the money to improve your financial standing. For example, you might use the funds to make improvements to your home that add to its value, or to purchase a second property that could grow your net worth.

Accessing funds through your home equity may also be worth the risk if you qualify for a lower interest rate compared to other financing options and prefer smaller payments over a long term to keep them manageable.

On the other hand, tapping your home equity may not be worth the risk if you're using the money for purchases that lose value, such as a vacation or a new car. Also, it may not be the best option if you're uncomfortable putting your home on the line, since falling behind on payments could lead to foreclosure.

If you've gone without monthly payments for a while, consider whether you're truly ready to start making payments again and if your budget can comfortably handle the new monthly expense.

Learn more: Should You Tap Into Your Home Equity?

Alternatives to Using Home Equity

Home equity loans, HELOCs and cash-out refinances can help you tap into your home's equity to consolidate debt, improve your home or pay for higher education. But if you'd rather not put your home at risk, there are a few alternative options worth considering.

• Personal loan: With a personal loan, you may qualify to borrow up to $100,000, which you can use for nearly any purpose. Repayment terms generally range from one to seven years, but you may find longer or shorter terms. Annual interest rates on 24-month personal loans average 11.66%, according to February 2025 Federal Reserve data. However, rates vary by lender, and annual percentage rates (APRs) typically range from 8% to 36%, depending on your creditworthiness and income.
• Intro 0% APR credit card: If you only need to borrow a small amount and can pay it off quickly, a credit card with a promotional 0% interest period might be a good option that doesn't use your home as collateral. You can use the card to cover big expenses or consolidate credit card debt without paying interest during the promotional period. Some of the best 0% intro APR credit card offers have an interest-free period up to 21 months, and some allow you to earn a bonus or rewards for eligible purchases.
• Retirement account loan: Borrowing from your retirement account can be a convenient way to access the cash you need without risking your home. If your employer offers this option, you may be able to borrow up to 50% of your vested balance or up to $50,000 in a one-year period. Of course, you must repay the loan according to its terms or the IRS may treat it as a taxable distribution. Borrowing from your retirement funds means missing out on potential investment growth, however, and could put your future retirement at risk. Consider this only as a last resort or if you know you'll be able to repay the loan quickly.

Shoring Up Your Credit Could Improve the Rate You Receive

While it's possible to take home equity out of a paid-off house for virtually any reason, you should only do so after carefully considering your goals and overall financial plan. There are benefits to owning your home outright, including the ability to use it as an asset to its fullest potential. However, borrowing from equity comes with a cost: the risk of losing your home. That's a big pill to swallow, especially if you value the freedom of not having a mortgage payment.

If you do decide to pursue a home equity lending option, remember that good credit can help you qualify and secure better rates. Before applying, make sure your credit is in good shape by checking your Experian credit report and credit score for free and resolving any issues you find.