Four routes leave the first mortgage where it is: a home equity line of credit, a fixed-rate home equity loan, a home equity investment that sells a share of the future value, and a reverse mortgage for an owner 62 or older; selling is the fifth and the only one that converts all of it.
Refinancing replaces the first mortgage, and an owner sitting on a low rate has an obvious reason not to. The alternatives are not variations on a single thing. Two are loans, one sells a share of what the house will be worth, one is not repaid until the owner leaves, and one is selling. They differ in what they cost, when they come due and what happens if the house falls in value.
What equity is, and how a lender measures it
Equity is the value of the house minus everything secured by it: the first mortgage, any second, any tax or contractor's lien. It is not the down payment that went in, and it is not the number on a listing site.
Nobody lends against a figure the owner supplies. A lender establishes value with a full appraisal, a drive-by, or an automated valuation model, and the automated route is common on smaller lines because it is fast and costs almost nothing. What it produces can differ from an appraisal in either direction.
Whatever the value, the reachable share is what is left under the lender's combined loan-to-value cap, commonly 80 to 85 percent across every lien. On a $450,000 house with $260,000 owed, an 85 percent cap leaves about $122,500 and an 80 percent cap about $100,000, against $190,000 of equity on paper.
Borrowing against it: a line, or a lump sum
A home equity line of credit is a revolving junior lien with a limit, drawn as needed. The rate is usually variable, quoted as prime plus a margin, and a draw period of five to ten years often allows interest-only payments before a repayment period at principal and interest. Closing costs are frequently small or waived, sometimes with a clawback if the line is closed inside two or three years, and an annual fee is common.
A home equity loan is the fixed version: one lump sum, a fixed rate, a fixed term, a junior lien. The rate normally sits above a first mortgage rate and the payment never moves, which is the trade against a line whose payment does. Both are debt, underwritten on income and credit, and both put a second lien on the title that has to be paid or subordinated when the house is sold or the first is refinanced.
Selling a share of it, and the reverse mortgage
A home equity investment, also marketed as a shared appreciation agreement, is not a loan. A company pays a lump sum now for a share of the home's value at a set future date or on a sale, commonly within a ten to thirty year window. There is no monthly payment and often no income test, which is the appeal. The cost is the share, settled against the value then rather than now, and agreements typically start from a discounted valuation and can require repayment even where the house has not risen. The contract rather than the category is the thing to read.
A reverse mortgage is for owners 62 and older, and the common form is the FHA-insured Home Equity Conversion Mortgage. It pays out as a lump sum, monthly draws or a line of credit. Interest accrues onto the balance, and nothing is repaid until the last borrower dies, sells, or leaves the home for more than twelve consecutive months. The owner keeps title and stays responsible for property tax, insurance and upkeep, and failing those is the usual cause of a HECM default. It carries its own mortgage insurance premium and requires HUD-approved counseling first.
Selling, and what the comparison actually is
Selling converts all of the equity, less the cost of selling, and leaves nothing attached to the house. It belongs on the list because leaving it off makes four financing products look like the whole set of choices.
The comparison between the rest is not the interest rate. It is how much cash is available under the value cap, what it costs monthly and in total, what happens if the house falls in value, and what has to happen before the house can be sold or the first mortgage refinanced. A junior lien has to be paid or subordinated, an agreement settled, a reverse mortgage repaid when the owner leaves. Each one attaches something to the title, and the title is where it turns up again.
Questions people ask
Can you take equity out of your house without refinancing?
Yes, through a home equity line of credit, a home equity loan, a shared appreciation agreement, or a reverse mortgage for an owner 62 or older. All of them leave the existing first mortgage and its rate untouched, which is the reason the question gets asked.
How much equity can you borrow against?
Usually up to a combined loan-to-value of 80 to 85 percent across every lien, so the balance of the first mortgage comes out of the figure before anything is available. On a $450,000 house with $260,000 owed, that is roughly $100,000 to $122,500 rather than the $190,000 of equity on paper.
What is an HEI loan?
A home equity investment, often written HEI, is not technically a loan. A company pays a lump sum now for a share of the home's future value, settled on a sale or at the end of the term. There is no monthly payment, and the cost is a share of the value rather than interest on a balance.