8 home equity loan alternatives worth considering

Home equity loan alternatives could be worth exploring if a one-time loan against your home isn't quite the right fit. A home equity loan works well for many homeowners, but how much you need, how you'd prefer to pay it back, and whether you want your home involved at all might point you toward a different tool entirely. 

Here are eight options to consider, including what each costs you and how to narrow down the right pick.

8 home equity loan alternatives

Each of these home equity loan alternatives could fund your goals, but they get there in very different ways. Some are tied to your home. Some are paid back on a fixed schedule. Some aren’t paid back monthly at all. 

Think of this as a menu to pick from based on your situation, not a ranked list from best to worst.

1. HELOC

A home equity line of credit (HELOC) gives you a revolving credit line secured by your home, instead of a one-time loan. You can borrow, repay, and borrow again up to your credit limit over and over during the draw period. 

Most HELOCs have variable interest rates, while Achieve Loans offers a fixed-rate HELOC. The advantage of a fixed-rate is predictability since your rate stays the same over the entire loan term.

2. Cash-out refinance

A typical cash-out refinance swaps your current mortgage for a bigger one, and you get the difference in cash. You trade one loan for another, so you only have one payment to track. 

Cash-out refinancing tends to work best when you can also lock in a better rate than your current mortgage. The catch is that you’re restarting your mortgage clock and paying closing costs all over again. You also need to watch your term length so you're not keeping yourself in debt for longer.

3. Personal loan

An unsecured personal loan skips the home collateral component entirely. Lenders base approval mostly on your credit, debt, and income rather than your equity. That difference often means extra cost. Rates typically run higher than home-secured borrowing, and lenders often cap how much you can get. 

4. Home equity investment (equity sharing)

A home equity investment (HEI), also known as a home equity sharing agreement, is not a loan. A third-party investment company offers you a lump sum upfront in exchange for a share of your home's value down the road. 

And an HEI has no monthly payment. However, you'll need to pay the investor a percentage of your home's value when you sell or when the term ends. Often, this is much more than you originally received, especially if your home has increased in value.

5. Reverse mortgage

A reverse mortgage flips the usual arrangement. Instead of you paying the lender each month, the lender pays you part of your equity in cash, and the balance grows with interest until you sell, move, or pass away. 

Most reverse mortgages are home equity conversion mortgages (HECMs) insured by the Federal Housing Administration (FHA). They’re available only to homeowners 62 or older. The trade-off is that the loan balance grows over time, reducing the equity you might leave to your heirs. If your heirs can't settle the amount owed when they inherit the home, their only option may be to sell it.

6. 401(k) loan

A 401(k) loan skips the credit check entirely. You’re essentially borrowing from yourself. According to the IRS, you could borrow up to 50% of your vested balance or $50,000, whichever is smaller, with five years to pay it back, as long as your plan allows borrowing. 

The downsides: If you leave your job for any reason, the loan may come due in full. Also, that money isn’t invested and growing while it’s out of your account. Add that you typically can't make new contributions to your retirement account until your loan is paid off, and your retirement savings could stagnate while you're borrowing. 

And on top of that, if you don't repay the loan on time, you may face tax penalties. Talk to a tax expert about the potential risks of 401(k) loans.

7. Credit card

For a small expense you’re confident you could pay off fast, a credit card could be an option. Most credit cards have a grace period for interest that means you pay no interest at all if you pay in full before your due date.

If you need longer, a card with an introductory 0% APR offer could give you a year or more of 0% interest on your purchase. Once that promotional window closes, the rate typically jumps well above what you'd pay with a secured loan, so this option tends to make the most sense for short-term borrowing.

8. FHA Title I home improvement loan

If the money is strictly for permanent improvements to your property, an FHA Title I loan is a government-backed route that doesn't demand the same equity cushion a home equity loan typically requires. It's narrower in purpose, built specifically for renovation costs, and loan amounts tend to run smaller as a result.

How to choose the right alternative

With so many home equity loan alternatives on the table, narrowing it down starts with a few honest questions: 

• What’s the money actually for? 

• How much do you need? 

• How much equity and credit do you have to work with? 

• How quickly can you pay it back?

• How do you want to repay it? 

Answering those first does most of the filtering for you. 

If you’re torn between a secured and unsecured route, comparing a home equity loan vs. a personal loan side by side could make the cost trade-off concrete.

If you’re weighing home equity investment vs. home equity loan pros and cons, it really comes down to certainty versus flexibility. A home equity loan locks in a monthly payment and a clear end date; a home equity investment skips the monthly bill entirely, but you’ll owe a buyout amount that rides on where your home's value ends up and could end up much higher than what you received.

There's no universal right answer here, only the one that matches your situation. 

If you're interested in exploring HELOC options, find out if you're eligible with no impact to your credit.