Last updated: February 06, 2025
Can you use a home equity loan for investments?

Getting by on your income alone can be challenging, so you might want to invest in property, stocks, or other options to make extra money.
If you're a homeowner, you may be able to get some investment money with a home equity loan. By the end of this article, you'll learn if using a home equity loan for investments may be right for you!
The essentials: Using a home equity loan for investments
- You may be able to use your home equity for an investment.
- Tapping into your equity may be possible with a home equity loan, home equity line of credit (HELOC), or cash out refinance.
- Popular investment options include property, stocks, bonds, and mutual funds.
How to use home equity for investments
When you have equity in your home, your property is worth more than the amount you still owe on your mortgage. You may be able to use this equity to make investments that potentially generate income or appreciate over time.
The important thing to remember is that you are essentially using your home as collateral for these investments. If the investment fails, you’ll lose the money you invested. Carefully consider any investment you plan to finance with home equity.
When used wisely, home equity may be a powerful tool for growing your wealth.
Potential investment options
You can tap into your home equity in various ways, from taking out a loan to investing in stocks and bonds. With so many options available, understanding the differences between them is essential.
There are a few choices when it comes to home equity investments:
- Real estate: Using home equity to buy an investment property could be a way to build wealth. By tapping into your home equity, you may be able to purchase real estate that generates rental income or increases in value over time. You can also use your home equity to finance improvements on an existing property or start a real estate development project. Just be sure to research any real estate investment thoroughly before committing your money, as there are many risks associated with this option.
- Stocks and bonds: When you invest in stocks, you own a piece of a company traded on an exchange, and you could benefit from potential capital appreciation and dividends. Bonds are debt instruments issued by companies or governments that may pay interest over time. While they may not offer as much potential return as stocks, they tend to be less risky.
- Mutual funds: Mutual funds may diversify your portfolio and possibly increase your returns with less risk than individual stocks. They typically consist of stocks, bonds, and other assets, allowing you to spread risk across multiple investments. These funds are typically sold through financial advisors and have associated fees. Research them carefully before investing money.
How does a home equity loan work?
Homeowners may use their home equity to obtain funds for investments of all types. Ways to do this include securing a home equity loan, HELOC, or cash out refinance.
Here’s how each option works:
Home equity loan
A home equity loan is a type of loan that involves borrowing money against the value of your home. The lender lets you borrow money based on the amount of equity you have in your property.
Your home equity is determined by subtracting the amount owed on your mortgage(s) from the current market value of your property. So, if your home is worth $500,000 and you owe $300,000 on your mortgage(s), then you should have $200,000 in equity.
With a home equity loan, you receive the entire loan amount upfront and repay it over time, typically by making fixed monthly payments.
Discover® Home Loans offers low fixed rates on home equity loans between $35,000 and $300,000 with $0 application fees, $0 origination fees, $0 appraisal fees, and $0 costs due at closing.
HELOC
A HELOC is like a home equity loan but works more like a credit card with an approved line of credit. With this type of loan, instead of receiving one lump sum payment right away, you can withdraw funds as needed up to an established maximum limit and pay back what you use plus interest.
A HELOC may be ideal for those who need access to funds over time or have ongoing expenses they want to finance.
Cash out refinance
A cash out refinance differs from the other two options because it involves refinancing your existing mortgage.
With a cash out refinance, you can take out more cash than what you owe on your current mortgage balance(s). You can then use the extra funds for an investment opportunity.
If you want to learn how much cash you may be able to get out of your home, you can use the cash out refinance calculator from Discover Home Loans.
Using home equity for investments FAQs
Home equity may help you fund an investment. That said, there are some critical factors to consider.
Here are answers to some frequently asked questions about using home equity for an investment:
Which is better, a HELOC or a home equity loan?
The answer to this question may depend on your financial goals. A HELOC may be best if you want to borrow funds as needed, while a home equity loan may be best if you want a lump sum of cash upfront.
There are other things to think about. A HELOC normally gives you more control over how much money you borrow at any given time. A home equity loan usually has fixed monthly payments, which may make it easier for you to budget.
Ultimately, you’ll want to decide which option works best for your needs.
Can I use a HELOC to pay off an investment property?
You may be able to use funds from either a HELOC or a home equity loan to pay off an investment property purchase. However, you should understand the risks associated with doing so.
Depending on market conditions and other factors, the value of your investment property may drop below any amount you borrowed against it. If this happens, you're still responsible for paying the outstanding loan balance.
Get started on your home equity loan for investments
A home equity loan may help you finance investments in other ventures, like real estate, stocks and bonds, or mutual funds.
However, doing your research before committing to one of these products is critical. Make sure you understand how financing works and shop for rates and products to get the best deal.
Please note: Discover Home Loans offers home equity loans and mortgage refinance opportunities but does not offer HELOCs.
Discover does not sell non-deposit investment products (“NDIPs”) or provide recommendations regarding NDIPs. NDIPs are NOT FDIC-insured.
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The information provided herein is for informational purposes only and is not intended to be construed as professional advice. Nothing contained in this article shall give rise to, or be construed to give rise to, any obligation or liability whatsoever on the part of Discover Bank or its affiliates.
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Loan Payment Example Disclosure
For example, if you borrowed $60,000 for a 20 year term at 8.86% APR, your fixed monthly payments would be $534.45.