How to Get Money From a Paid-Off House

Home Equity Loan: You Borrow a Lump Sum Against the Home

Suppose the need is a single, known cost, such as a new roof or a car. A home equity loan is built for that shape of need. It is a loan secured by the home that pays out one lump sum. The borrower then repays it over time in regular payments.

The CFPB says a home equity loan, sometimes called a HEL, "usually has a fixed interest rate–one that will not change." A fixed rate means the interest charge stays the same for the life of the loan. The FTC adds that these loans typically have a fixed annual percentage rate, or APR, which "includes interest and other credit costs." A steady rate can make the monthly payment easier to plan around.

The home is the collateral. The CFPB states that if the borrower cannot pay back the loan, "the lender could foreclose on your home." Foreclosure is the legal process a lender uses to take and sell a home when a secured loan is not repaid.

Lenders review more than the house. The CFPB's reverse mortgage booklet notes that home equity loans and lines of credit "depend on your income and credit." The lender looks at the home's value, the borrower's credit history, and whether income can cover the new payment. Having no existing mortgage means there is no first loan ahead of the new one. Even so, approval depends on the lender's review. The CFPB also notes that these loans may carry upfront fees and costs, so the full cost matters, not only the monthly payment.

The trade is clear. The homeowner gets cash in hand, but takes on a new monthly bill, and the home is on the line if that bill cannot be paid.

HELOC: A Flexible Borrowing Account for Costs That Come in Pieces

Some needs do not come as one bill. Care costs, repairs that unfold over a few years, or help for a family member can arrive in pieces. A home equity line of credit, or HELOC, is designed for needs like these.

A HELOC is a revolving line of credit secured by the home. The CFPB describes it in its answer on what a HELOC is as an "open-end" line of credit "that allows you to borrow repeatedly against your home equity." In a separate answer, it compares a HELOC to a credit card, except that the borrowing is against the home.

A HELOC usually has two stages. During the draw period, the borrower can take money up to the credit limit, often with special checks or a card. The FTC notes that during this time "you may only have to pay the interest on money you borrowed." After the draw period ends, the repayment period begins. No more money can be borrowed, and the borrower must start repaying the amount due, "either the entire outstanding balance or through payments over time." The length of each period is set by the loan's terms.

HELOCs usually have a variable interest rate. A variable rate is one that can go up or down over time, so the monthly payment can change too. The CFPB notes that some HELOCs let a borrower convert part or all of the balance to a fixed rate, which is usually higher but more predictable.

The access to money can also change. The CFPB explains that if the home's value falls significantly, or the borrower's finances change, the lender may freeze or limit further borrowing.

The home is collateral here as well. The CFPB says to consider a HELOC only with confidence about keeping up with payments, because falling behind could mean losing the home. A HELOC offers flexibility, and it trades that for a payment that can shift. The contrast between a HELOC and a reverse mortgage is set out in reverse mortgage vs HELOC.

Cash-Out Refinance: Your Paid-Off Home Gets a New Mortgage

The phrase "cash-out refinance" can sound odd for a house with no mortgage at all. Here is what it means in that setting.

A cash-out refinance is a new mortgage taken out on the home, where the borrower receives cash from the loan. When there is an existing mortgage, the new, larger loan pays off the old one and the borrower keeps the difference. When the home is already paid off, there is nothing to pay off, so the borrower receives the loan amount, minus closing costs, as cash.

In plain terms, the home is mortgaged again. A homeowner who was free of mortgage debt now owes monthly mortgage payments, often over a long term. The interest rate, the length of the loan, and the size of the payment depend on the lender's offer and the borrower's credit, income and the home's value. The CFPB lists refinancing among the alternatives to a reverse mortgage in its answer on who can take out a reverse mortgage.

The trade is a large sum now in exchange for a long-term debt secured by the home. If the payments are not made, the lender can foreclose, just as with the original mortgage.

For a homeowner living on a fixed income, the ongoing payment is the part to weigh most carefully. A refinance asks the household budget to carry a mortgage again, sometimes for many years, at a stage of life when income may not rise.

Reverse Mortgage: Accessing Equity Without Monthly Mortgage Payments

Advertising about reverse mortgages can make them sound either frightening or free. Neither picture is accurate, so it helps to go slowly.

A reverse mortgage is a loan against the home's equity for older homeowners, where the borrower does not make monthly mortgage payments. The CFPB explains in its answer on what a reverse mortgage is that the title to the home stays in the owner's name. It also states the central trade plainly: "Interest and fees are added to the loan balance each month and the balance grows." The amount owed rises over time instead of falling.

The rules come with the loan. The CFPB says borrowers "are required to pay property taxes and homeowners insurance, use the property as their principal residence, and keep their house in good condition." A principal residence is the home a person lives in for the majority of the year. The loan comes due when the last surviving borrower or eligible non-borrowing spouse dies, or no longer lives in the home as a principal residence. Selling the home or moving out ends it as well. The CFPB adds that the loan may need to be repaid sooner if the taxes or insurance go unpaid or the home is not kept in good repair. Its booklet warns that a borrower "could face foreclosure" if money for these costs runs out. More background is in what a reverse mortgage is.

The federally insured version is the Home Equity Conversion Mortgage, or HECM. HUD's HECM program page calls it "the only reverse mortgage insured by the U.S. Federal Government," available only through an FHA-approved lender. The law defines an eligible homeowner in 12 U.S.C. § 1715z-20(b) as one "who is, or whose spouse is, at least 62 years of age or such higher age as the Secretary may prescribe." The CFPB describes the HECM as a loan "only for homeowners who are 62 and older." Under 12 U.S.C. § 1715z-20(d), conditions for insurance include, among others, an approved lender, a home the borrower lives in, prepayment without penalty, and "adequate counseling" from an independent third party.

Counseling comes before closing. HUD's lender guide states that counseling by a HUD-approved HECM counselor is required. HUD says to search its HECM Counselor Roster or call (800) 569-4287.

The statute lists how payments may be taken under 12 U.S.C. § 1715z-20(d)(9): "based upon a line of credit," monthly "over a term specified by the mortgagor," monthly "over the tenure of the mortgagor," combinations of monthly payments with a line of credit, or "any other basis that the Secretary considers appropriate." A lender pays under the loan's terms, subject to its approval and the borrower's obligations.

The amount available, HUD says, depends on factors including the age of the youngest borrower or eligible non-borrowing spouse and the lesser of the appraised value, the HECM FHA mortgage limit, or the sales price. HUD publishes the current maximum claim amount. Federal rules limit the origination fee, it may be fully financed with the loan, and the lender discloses it.

One protection matters. Under 12 U.S.C. § 1715z-20(d)(7), the homeowner is not liable for the difference when the balance exceeds what the home's sale recovers. The CFPB says neither borrowers nor heirs "will have to pay back more than your home is worth."

A reverse mortgage is one option among several, and it does not suit every situation. The CFPB booklet notes that if a health issue may lead to a move soon, it is "an expensive way to cover short term cash needs."

Other Ways to Use a Paid-Off Home's Value

Borrowing is not the only route. Some of the choices below raise cash, and others lower monthly costs so the money already coming in goes further.

Selling the home. Selling turns the full value into cash, less the costs of the sale. The trade is that the owner gives up the home and needs somewhere new to live.

Downsizing. This means selling and moving to a less expensive home, bought or rented. The difference can free up cash. The CFPB booklet says moving to a more affordable home "may be your best option to reduce your overall expenses" for some owners. The trade is leaving a familiar home and neighborhood.

Renting part of the home. A spare room or a separate unit on the property can bring in rent without new debt. Local rules on renting and on separate units differ from place to place. Sharing a home also changes daily life and brings a landlord's responsibilities.

Property tax relief. Some programs lower what the home costs to keep rather than produce cash. The CFPB notes that "many localities also have programs to help with property taxes" and suggests checking with the county or town tax office. Its booklet mentions programs that "may help you defer property taxes." Deferral means putting off payment until later. Programs and rules differ by state and county.

A benefits review. The CFPB points out that state and local programs can help with utilities, fuel and home repairs, and that information on these programs is available through benefitscheckup.org. A local aging services office or a benefits counselor may spot help a homeowner is not yet using.

Each of these has trade-offs of its own. None is better for everyone.

How the Options Compare: What Each One Involves and What It Trades

Placing the choices side by side can make a hard decision feel more manageable. What follows describes each option. It does not rank them, because fit depends on age, income, health, plans and family.

• Home equity loan. It creates a new debt, paid out as one lump sum. Monthly payments are required, and the home is collateral. It tends to fit a single known cost where the budget can carry a steady payment, subject to the lender's review of credit and income.
• HELOC. It creates a new debt that can be drawn as needed. Payments are required, and with a variable rate they can change. The home is collateral. It tends to fit costs that come in stages, for a borrower able to handle a shifting payment.
• Cash-out refinance. It creates a new mortgage on a home that had none. Monthly payments are required, often for years, and the home is collateral. It tends to fit a borrower whose income can support a mortgage again.
• Reverse mortgage (HECM). It creates a new debt for owners who meet the age-62 rule. No monthly mortgage payment is required, but interest and charges are added so the balance grows. The borrower must live in the home as a principal residence, pay the property taxes and homeowners insurance, and keep up the home. The loan comes due when the last borrower dies, sells or moves out. It tends to fit owners who plan to stay put for the long term.
• Selling or downsizing. No new debt and no payment to a lender. The home stops being collateral because it is sold. It tends to fit owners open to moving.
• Renting part of the home. No new debt, and it may add monthly money. The home is not pledged. It tends to fit owners with space and a willingness to share it, where local rules allow.
• Property tax relief. No new loan in the usual sense, though a deferral may have to be repaid later under the program's rules. It lowers costs rather than producing cash, and eligibility depends on the local program.

A reverse mortgage is one choice on this list, not the default. A HUD-approved counselor, a lender, a tax professional or an attorney can each speak to the part of the decision they handle.