If you’re looking for a traditional home equity loan or line of credit through the VA, it unfortunately doesn’t exist — the VA loan program doesn’t include second mortgages.
But the VA home loan program does offer the VA cash-out refinance, which can accomplish some of the same goals as a home equity loan.
- Home equity is the portion of your home’s value that’s already paid off — and it can be leveraged to access lower-cost borrowing.
- The VA Cash-Out Refinance can unlock equity, but it also refinances the entire existing loan.
- Non-VA second mortgages (home equity loans and HELOCs) let you tap equity while keeping your original VA loan in place.
How to Access Equity With a VA Cash-Out Refinance
The Department of Veterans Affairs does not insure home equity loans or home equity lines of credit (HELOCs). But the VA does offer another way to borrow against equity: the VA Cash-Out Refinance.
A Common VA Cash-Out Refinance Scenario
Say you bought a $250,000 home 10 years ago. You’ve paid the mortgage down to $210,000, and the home has since appreciated to $360,000. You own a $360,000 home and owe $210,000 — that $150,000 difference is your home equity.
A VA Cash-Out Refinance lets you access that equity while refinancing the existing mortgage. You’d take out a new $360,000 mortgage, use $210,000 to pay off the current balance, and receive the remaining $150,000 as cash — less closing costs and fees.
Keep in mind: Many lenders cap VA Cash-Out loans at 90% of your home’s value. In this example, that would leave you with $114,000 instead of $150,000.
Pros and Cons of a VA Cash-Out Refinance
Pros:
- Higher borrowing limits: The VA Cash-Out Refi allows borrowing up to 100% of your home’s value — higher than most non-VA equity lenders, which typically cap the loan-to-value at 80%.
- One loan, one payment: Because it replaces the original mortgage, you access equity and still make only one mortgage payment.
- Opportunity to improve your rate and term: Refinancing creates an opening to lower your rate on the entire mortgage debt or change the loan term.
Cons:
- Loses your existing rate: You take on today’s market rate for the new loan. If your current rate is lower, refinancing means giving that up — in which case a second mortgage may be a better choice.
- Higher upfront costs: As a new primary mortgage, the VA Cash-Out requires full closing costs on a large loan amount.
- Longer terms can cost more: If you’re well into your existing loan, resetting to a fresh 30-year term means paying more interest on the remaining balance over time.
Who Should Use the VA Cash-Out Refinance?
The VA Cash-Out Refi works best for borrowers with a relatively new mortgage who can also lower their rate in the process. It can also refinance a non-VA loan — useful for homeowners currently paying FHA or conventional mortgage insurance, since a VA cash-out loan can eliminate that cost entirely.
Borrowers who want to preserve their existing loan terms should look at a home equity loan or HELOC instead.
Using a Home Equity Loan to Access Equity
A home equity loan leaves the existing VA mortgage in place and adds a second mortgage on top of it. This second mortgage won’t be a VA loan product — the VA doesn’t insure second mortgages — but it works alongside the current VA loan.
A Common Home Equity Loan Scenario
Returning to our example: the VA homeowner has a $360,000 home, a $210,000 mortgage balance, and $150,000 in equity. They want to keep the existing VA loan because it carries a lower rate than today’s market. They also understand that a big portion of that loan’s lifetime interest has already been paid — resetting to a new mortgage would undo that progress.
Instead, this homeowner takes out a $50,000 home equity loan at a fixed rate over 10 years — leaving the primary VA loan untouched.
What Is the Monthly Payment on a $50,000 Home Equity Loan?
The monthly payment depends on the rate and term. Here are sample payments at different rates:
| Interest Rate* | 10-Year Term | 15-Year Term |
| 7% | $580 | $450 |
| 7.5% | $594 | $463 |
| 8% | $607 | $478 |
*Rates and payments are for example purposes only and may not be available.
This new payment is due in addition to the existing primary VA mortgage payment.
Pros and Cons of a Home Equity Loan
Pros:
- Shorter terms mean less interest: A 10- or 15-year home equity loan gives interest less time to accumulate compared to a 30-year refinance
- Preserves your VA loan: If your primary mortgage has a historically low rate, keeping it in place can save significant money over time
- Lower rates than unsecured borrowing: Home equity loans offer significantly better rates than credit cards or personal loans
- Lower upfront costs: Smaller, simpler loans require less in closing costs compared to a full primary mortgage refinance
Cons:
- Second lien on your home: The home equity lender places a second lien on the property — meaning two lenders could potentially foreclose if payments aren’t made
- Second monthly payment: A second mortgage adds a second payment to your monthly budget
- Lower borrowing limits: Home equity lenders typically cap combined mortgage debt at 80–90% of home value, compared to up to 100% with the VA Cash-Out
Who Should Use a Home Equity Loan?
VA borrowers who want to keep their current mortgage in place while accessing equity are the ideal candidates for a home equity loan.
Using a Home Equity Line of Credit (HELOC)
A HELOC offers a flexible alternative to a home equity loan. Instead of a lump sum, you get an equity-backed credit line you can draw from, repay, and reuse as needed — similar to a credit card, but with a much lower interest rate.
A Common HELOC Scenario
Our VA homeowner with $150,000 in equity needs to fund an ongoing renovation project but wants to borrow gradually as costs arise. They open a $60,000 HELOC.
For the first four months, while getting contractor quotes, no money is drawn — so no payment is due. When plumbing and electrical work begins, they draw $10,000. Now there’s a $10,000 balance and a monthly payment due. As the project continues, they draw more as needed, paying interest only on what’s been drawn.
Throughout, the homeowner continues making regular payments on the primary VA mortgage.
What Is the Monthly Payment on a $50,000 HELOC?
HELOC payments depend on the current rate, the amount drawn, and whether the loan is in its draw or repayment period. Here’s a sample with $50,000 drawn:
| Interest Rate* | Draw Period (Interest Only) | Repayment Period (20 Years) |
| 8% | $333 | $418 |
| 9% | $375 | $450 |
| 10% | $417 | $482 |
*Rates and payments are for example purposes only and may not be available.
During the draw period (typically the first 10 years), you can make interest-only payments. When the draw period ends, the balance converts to a standard amortizing loan with fixed payments — often over 20 years.
Pros and Cons of a HELOC
Pros:
- Pay interest only on what you use: Gradual draws mean lower interest costs compared to borrowing a full lump sum upfront
- Reusable: You can draw, repay, and draw again during the draw period
- Lower upfront costs: Typically lower closing costs than a primary mortgage refinance
Cons:
- Variable rate: Your rate — and payment — can rise or fall with market conditions
- Second lien: Like a home equity loan, a HELOC places a second lien on your home
- Ongoing fees: Annual fees and transaction fees add to borrowing costs over time
Who Should Use a HELOC?
VA borrowers who want flexible access to equity — drawing funds as needed rather than all at once — are good HELOC candidates. If you’d rather not manage variable rates and draw/repayment periods, a fixed home equity loan may be the simpler choice.
The Real Risk-Reward of Using Home Equity
Some lenders market home equity as money that’s just sitting there waiting to be used. That framing obscures an important reality: tapping equity means taking a loan. You’re paying interest to access it, and your home serves as collateral.
The Risk
When you borrow against your equity, the lender has a claim on that portion of your home’s value. You keep the home as long as you keep making payments. Miss enough payments, and you risk foreclosure.
The Reward
That collateral is also what makes the rates so favorable. Home equity loans cost far less in interest than credit cards or personal loans — often saving thousands of dollars in finance charges. And once the loan is paid off, that equity is fully yours again.
Smart vs. Not-So-Smart Reasons to Tap Home Equity
The most financially sound approach to home equity borrowing focuses on uses that build long-term stability rather than short-term spending.
Smart Uses
- Home improvements that increase property value
- Consolidating high-interest debt at a lower rate
- Investing in another property
- Education expenses
Less Advisable Uses
- Vacations
- Holiday gifts or seasonal spending
- Speculative or unproven investments
- Vehicle purchases
What to Do Next
Whether you’re considering a VA Cash-Out Refinance, a home equity loan, or a HELOC, the cost of tapping into home equity depends largely on interest rates and how you structure the borrowing. Comparing offers from multiple lenders is the best way to find the most affordable path forward.
Ready to explore your options? See what you may qualify for with Refi.com today.
