Home Equity Loans, HELOCs and Refinancing Explained
Home equity is the part of your home you own outright: its value minus what you still owe on it. There are four common ways to borrow against it: a home equity line of credit (HELOC), a home equity loan, a cash-out refinance, and a home equity investment that trades a share of your home's future value for cash now. All four use your home as security. The CFPB is direct about what that means: "If you fall behind or can't repay the loan on schedule, you could lose your home." This page explains how each option works, how lenders decide how much you can borrow, what it costs, and where to go next in our home equity guides, using CFPB, IRS, federal rule and comparison-site sources checked on October 26, 2026.
Partner disclosure. Loans Generator may be paid through an affiliate network when you click or submit a request; this does not change what we report.
Key takeaways
- Every option on this page is secured by your home. Missed payments can end in foreclosure, and a home equity investment can force a sale when it comes due.
- Lenders size a HELOC or home equity loan with the combined loan-to-value ratio (CLTV): all loans on the home divided by its value. The CFPB booklet's example uses 75%; lender listings on SuperMoney show maximum loan-to-value ratios up to 90%.
- A HELOC is usually variable-rate with a draw period and then a repayment period, when payments are often much higher. A home equity loan is usually a fixed-rate lump sum.
- A cash-out refinance replaces your first mortgage. If your current rate is low, that can cost more than it first appears.
- Interest is tax-deductible only if the money is used to buy, build or substantially improve the home that secures it, per IRS Publication 936.
What are the ways to borrow against or refinance your home?
| Option | How you get the money | Rate | What happens to your first mortgage | Main risk |
|---|---|---|---|---|
| HELOC | A line you draw from as needed during a draw period | Usually variable | Stays in place; the HELOC is usually a second lien | Payment jumps when the draw period ends; foreclosure if you cannot repay |
| Home equity loan | One lump sum | Usually fixed, per the CFPB | Stays in place; usually a second lien | Foreclosure if you cannot repay |
| Cash-out refinance | A new, larger first mortgage; you take the difference in cash | Fixed or adjustable | Replaced by the new loan | A low existing rate can be lost; closing costs |
| Rate-and-term refinance | No cash out; changes the rate or term | Fixed or adjustable | Replaced by the new loan | Closing costs can outweigh the savings |
| Home equity investment | A lump sum for a share of the home's future value | No interest rate; repayment based on home value | Stays in place; the company adds a lien | Large single repayment; the CFPB calls these "expensive" |
Sources: CFPB "What is a home equity loan?", "What is a home equity line of credit (HELOC)?", "What other types of loans are similar to a HELOC?", the CFPB Office of Research blog on cash-out refinances and the CFPB Issue Spotlight on home equity contracts, accessed October 26, 2026.
The CFPB describes a home equity loan as a lump sum that "usually has a fixed interest rate," and a HELOC as "an 'open-end' line of credit that allows you to borrow repeatedly against your home equity." On a cash-out refinance it says: "you replace your existing mortgage with a bigger mortgage and take the difference in cash," and depending on the terms it "may be more or less expensive than a HELOC." The side-by-side comparisons are in home equity loan vs HELOC and HELOC vs cash-out refinance.
How much can you borrow against your home?
Lenders start from a combined loan-to-value (CLTV) limit, not from your equity alone. The math is:
maximum new line = (home value × CLTV limit) − current mortgage balance
Here is that math for one hypothetical home. These are not offers, and the limit any lender uses depends on its own rules, your credit and your income.
Figure: hypothetical inputs. Maximum line = $400,000 × CLTV limit − $240,000: $300,000 − $240,000 = $60,000 at 75%; $320,000 − $240,000 = $80,000 at 80%; $340,000 − $240,000 = $100,000 at 85%; $360,000 − $240,000 = $120,000 at 90%.
Run your own numbers in the HELOC borrowing calculator. Equity is only the first test: lenders also check your credit score and your debt-to-income ratio with the new payment included. What named lenders publish on each is in HELOC requirements.
What does borrowing against your home cost?
- Interest. HELOC rates are usually an index, such as the prime rate, plus a lender margin, so they move. Many HELOCs allow interest-only payments during the draw period; the CFPB warns that "monthly payments are often significantly higher once you enter repayment."
- Upfront fees. The CFPB lists application fees, appraisal fees and closing costs for home equity credit. Some lenders charge an early-termination fee if you close the line early, so read the early-closure terms.
- Ongoing fees. Some HELOCs charge annual or transaction fees.
- For a home equity investment, processing fees "often 3-5% of the initial payment," per the CFPB, plus a repayment tied to your home's value.
Ask every lender for its full fee list in writing so you can compare totals, not just rates.
What protections do you have?
A three-day right to cancel. For a HELOC, home equity loan or refinance secured by your principal home, Regulation Z generally lets you rescind until midnight of the third business day after closing, or after you receive the required notice and disclosures if that is later (12 CFR 1026.15 for open-end lines, 1026.23 for closed-end loans). There are exceptions, for example a refinance with your current lender that adds no new money. The CFPB booklet says that if you cancel in time, the lender must return the fees you paid.
Tax rules. IRS Publication 936 allows a deduction for home equity interest only when the money is used to "buy, build, or substantially improve" the home that secures the loan, and only if you itemize. Money used to pay off cards or a car does not qualify.
Your home is still at stake. None of these protections removes the core risk. If the purpose is to pay off unsecured debt, read using a HELOC to pay off credit cards first, and see can you lose your home with a HELOC for how default and foreclosure work.
Comparing HELOC lenders. SuperMoney, the comparison service below, lists HELOC lenders by state, with their published credit and loan-to-value ranges. Loans Generator may be paid through an affiliate network when you click or submit a request; this does not change what we report. A HELOC is secured by your home: if you cannot repay it, you could lose your home. No lender has to approve you, and no rate, line size or approval is promised.
Home equity guides
Qualify
- HELOC requirements: equity, CLTV, credit score, DTI and documents
- Getting a HELOC with a 640 credit score
- HELOC debt-to-income limits
- HELOC borrowing calculator
Compare
- HELOC vs cash-out refinance
- Home equity loan vs HELOC
- Cash-out vs rate-and-term refinance
- Home equity investment vs HELOC
Refinancing
Costs and risks
Companies
- LendingTree home equity review
- Quicken Loans HELOC review: who runs QuickenLoans.com now
- MoneyAtlas HELOC review
- SuperMoney HELOC review
Related guides elsewhere on the site
Where else to look
- Consolidating debt? Our debt consolidation guide covers unsecured options that keep your home out of the deal.
- Paying for a repair or project? The financing guide is organized by expense, from roofs to HVAC.
- Working on your score before you apply? See credit scores.
- All calculators are collected on our tools page.
Common questions
What is the difference between a HELOC and a home equity loan?
A home equity loan pays you a lump sum, usually at a fixed rate. A HELOC is a credit line you draw from as needed, usually at a variable rate, with a draw period followed by a repayment period. Both are usually second liens secured by your home.
How much equity do I need for a HELOC?
Lenders cap the combined loan-to-value ratio. The CFPB booklet's example uses 75%, and lender listings on SuperMoney show maximum loan-to-value ratios up to 90%. On a $400,000 home with a $240,000 mortgage, an 85% cap leaves room for a line of up to $100,000 before credit and income checks.
Is a cash-out refinance better than a HELOC?
It depends on your current mortgage rate and how you will use the money. A cash-out refinance replaces your whole first mortgage, so if your existing rate is low you may pay more on the entire balance. A HELOC keeps your first mortgage in place.
Can I lose my home with a home equity loan or HELOC?
Yes. Both are secured by your home. The CFPB warns that if you fall behind or cannot repay on schedule, you could lose your home.
Is home equity loan interest tax-deductible?
Only if you itemize and use the money to buy, build or substantially improve the home that secures the loan, per IRS Publication 936.
Sources
- Consumer Financial Protection Bureau, "What is a home equity line of credit (HELOC)?", accessed October 26, 2026.
- Consumer Financial Protection Bureau, "What is a home equity loan?", accessed October 26, 2026.
- Consumer Financial Protection Bureau, "What other types of loans are similar to a HELOC?", accessed October 26, 2026.
- Consumer Financial Protection Bureau, "What you should know about home equity lines of credit" booklet, accessed October 26, 2026.
- Consumer Financial Protection Bureau, Office of Research blog, "A look at cash-out refinance mortgages and their borrowers between 2013 to 2023," accessed October 26, 2026.
- Consumer Financial Protection Bureau, "Issue Spotlight: Home Equity Contracts: Market Overview," January 15, 2025, accessed October 26, 2026.
- eCFR, 12 CFR 1026.15 and 12 CFR 1026.23, Right of rescission, accessed October 26, 2026.
- Internal Revenue Service, Publication 936 (2025), accessed October 26, 2026.
- SuperMoney, "Best Home Equity Lines of Credit for October 2026," lender listings, accessed October 26, 2026.
- LendingTree, "Best HELOC Rates (home equity line of credit page)," accessed October 26, 2026.
- Consumer Financial Protection Bureau, “What you should know about home equity lines of credit (booklet)”
- Consumer Financial Protection Bureau, “Office of Research blog: A look at cash-out refinance mortgages and their borrowers between 2013 to 2023”
- Consumer Financial Protection Bureau, “Issue Spotlight: Home Equity Contracts: Market Overview (January 15, 2025)”
- eCFR (Regulation Z), “12 CFR 1026.15, Right of rescission”
- Internal Revenue Service, “Publication 936 (2025), Home Mortgage Interest Deduction”
Loans Generator is not a lender or mortgage broker and does not make credit decisions. Links on this page lead to third-party sites with their own terms and privacy policies. We cannot guarantee approval, rates or terms. A HELOC, home equity loan, cash-out refinance or home equity investment is secured by your home, and you could lose your home if you do not repay. Figures cited here were checked on October 26, 2026. This page is general information, not legal, tax or financial advice.