Two Ways to Access Your Equity without Selling:
Home Equity Lines of Credit (HELOC) and Home Equity Loans
When it comes to tapping into the equity in your home, there are two ways homeowners can access the cash without selling: a Home Equity Line of Credit (HELOC) and a Home Equity Loan. Both can be powerful tools for financing major expenses, consolidating debt, or - my favorite - investing in real estate. Understanding the differences in the two will help you make the right choice for your situation.
In this blog, we’ll explore how HELOCs and Home Equity Loans work, the pros and cons of each, and when one might be a better fit than the other. We’ll also look at how the real estate market plays a role in accessing home equity and why consulting an experienced real estate agent can help you maximize your opportunities.
What Are HELOCs and Home Equity Loans?
Home Equity Line of Credit (HELOC): A HELOC works like a credit card secured by your home. You’re approved for a credit limit based on your equity, and you can withdraw funds as needed during a set draw period (usually 5–10 years). HELOCs usually have variable interest rates and flexible repayment options.
Home Equity Loan: Often called a “second mortgage,” a home equity loan allows you to borrow a lump sum based on the equity you’ve built in your home. You repay this loan in fixed installments over time, typically with a fixed interest rate.
How Do HELOCs and Home Equity Loans Work?
Eligibility: To qualify for either option, most lenders require that you retain at least 15–20% equity in your home after borrowing. With rising home values, many homeowners have seen their equity grow significantly over the past few years.
Loan-to-Value Ratio (LTV): The loan amount you’re eligible for depends on your home’s current market value. For example, if your home is worth $600,000 and you owe $300,000, you may be able to borrow up to $180,000 with a HELOC or home equity loan, based on an 80% LTV.
Use of Funds - Both options can be used for:
- Renovations: Think kitchen upgrades or adding an ADU (Accessory Dwelling Unit) to bring in short-term rental (#strinvestment) income.
- Debt Consolidation: Replace high-interest credit card debt with lower-interest home equity financing.
- Real Estate Investments: Leverage your equity to fund down payments for #CreativeFinanceDeals or new investment properties.
Pros and Cons of Each Option
HELOC – Pros:
- Flexible access to funds as needed during the draw period.
- Pay interest only on what you borrow.
- Great for recurring expenses or phased projects, like a multi-stage renovation.
HELOC – Cons:
- Variable interest rates can lead to fluctuating payments.
- Risk of overspending since funds are more accessible.
Home Equity Loan – Pros:
- Fixed interest rates provide predictable monthly payments.
- Ideal for large, one-time expenses (e.g., a full home remodel).
- Can lock in low rates during periods of economic uncertainty.
Home Equity Loan – Cons:
- Less flexibility—you receive a lump sum upfront
- Immediate repayment begins, regardless of when you use the funds.
When Should You Use a HELOC vs. a Home Equity Loan?
Choose a HELOC if:
- You’re funding a project or expense that requires flexibility, like ongoing renovations.
- You’re exploring investments that may need capital at different times, such as purchasing properties under creative financing deals.
Choose a Home Equity Loan if:
- You have a large, one-time expense like consolidating debt or paying for education.
- You want stable, predictable payments over the life of the loan.
The Real Estate Market and Accessing Home Equity
The real estate market continues to thrive, including the Austin market where the median home value increased to $549,000 as of late 2024. Appreciation in recent years has significantly increased the amount of equity many homeowners have, making HELOCs and home equity loans attractive options, especially if you're looking to expand your real estate portfolio. You can also use the equity in your current property to add value to that property or other properties through high ROI renovations.
Real-Life Scenario: Expanding Portfolio with Home Equity
Imagine you own a home valued at $700,000, and you’ve paid down your mortgage to $400,000. By tapping into a HELOC, you secure $160,000 to fund renovations that make your property more attractive for short-term rentals (#STRInvestment). Alternatively, you could use a home equity loan to purchase another property, structuring the deal as part of a #CreativeFinanceDeal to maximize your investment potential. With Austin’s diverse neighborhoods and growing demand, these strategies can help you turn your equity into long-term wealth.
Why Work with an Experienced Real Estate Agent?
Navigating the complexities of HELOCs and Home Equity Loans can be complex and requires expert guidance. As your trusted Austin, Texas Realtor®, I’m here to help you understand your options, evaluate your home’s value, and connect you with the right financial professionals.
With my local expertise, I can identify high-ROI opportunities, from luxury property renovations to investment deals, ensuring you make the most of your home equity.
Why Choose Beth Perkins?
I specialize in helping homeowners and real estate investors achieve their financial and real estate goals. Whether you’re looking to sell your home in Austin, tap into your equity, or explore creative financing solutions to acquire additional real estate, I can help guide you through the process.
Take the First Step
If you’re considering a HELOC or Home Equity Loan - or simply want to learn how to maximize your home’s value - let’s connect! We can discuss how to unlock the potential of your home equity in order to meet your current financial goals.
