If you've been looking for a smart and cost-effective way to borrow money lately, you've likely found yourself looking for longer than you wished. With interest rates on items like personal loans and credit cards in the double digits (the latter hovering near a record high), alternatives like home equity loans and home equity lines of credit (HELOCs) have become particularly attractive. These products allow homeowners to borrow from their accumulated home equity and both allow for the interest paid to be deducted from their taxes when used for eligible purposes.

Not every homeowner will qualify, however. One of the key qualifications surrounds the amount of equity available for use in the home. The more you have, the more likely you are to be approved to borrow from it. This leads to a series of questions, one prominent one being what it means to have 100% home equity. Below, we'll analyze the answer and sort through the potential borrowing options homeowners may want to consider if they find themselves in this position.

.

What does 100% home equity mean for homeowners?

To understand what 100% home equity means, precisely, for homeowners, it's important to first understand how home equity is calculated. Your total home equity amount is simply the amount of money you have in your home after your mortgage balance has been subtracted from the total home value. So, if your home is worth $500,000 and you have a mortgage balance of $200,000, your home equity is $300,000 (although you typically won't be able to borrow that much).

Having 100% home equity, then, essentially removes the mortgage balance from the equation. Using that same $500,000 home value, if your mortgage balance has been paid off or if you simply bought the home for cash in full, you'd have 100% home equity. In other words, the total value of your home would be yours as you would not need to account for anything owed to the lender.

But can you borrow 100% of that $500,000? As mentioned above, the answer is almost always no. Lenders typically will limit homeowners to borrowing 80% to 90% of their home's value. So, in this example, you'd only be able to withdraw $400,000 to $450,000, even though you technically have 100% home equity. 

Still, while your borrowing limitations may be strict, because of your unique equity circumstances, you'll likely position yourself for better rate offers and terms compared to a borrower with a bigger mortgage balance or someone with a small amount of accumulated equity. 100% home equity inherently means you're a less risky borrower, so lenders will generally compete for your business. 

If you have this amount of home equity, then, it makes sense to shop around to compare rates and lenders to see which offer is the most cost-effective for your unique borrowing situation.

.

Is a HELOC or home equity loan better if you have 100% home equity?

The answer to this question depends on your preferences and the larger interest rate climate at the time of borrowing. 

A home equity loan would give you access to that equity in one lump sum, which could be advantageous if you need it for a major purchase. But repayments on the full amount borrowed will be required to be made right away and, currently, home equity loan rates are higher than those on HELOCs (8.36% versus 8.14%). 

Meanwhile, not only are HELOCs less expensive right now but they're also positioned to become more affordable in the months ahead. With a variable rate that will change monthly for borrowers, HELOC repayments could soon decline if interest rate cuts are issued again later in 2025. This is a plus compared to home equity loans, which have a fixed rate that will require refinancing to lower costs. Additionally, HELOCs mandate interest-only payments during the draw period, unlike the immediate payments that come with a home equity loan.

In short, there are timely and timeless pros and cons of both primary home equity borrowing products, so carefully consider both before applying. And, more importantly, calculate your long-term affordability before borrowing as the home in question will function as collateral in either circumstance, even with 100% home equity as the origination point.

The bottom line

Building up 100% home equity may not be simple or quick, but for those homeowners who enjoy this amount of equity in their home, there are multiple attractive borrowing options to explore right now. Home equity loans and HELOCs, specifically, are much cheaper than personal loans and credit cards currently, and with 100% home equity, qualifying to borrow some of this money should be relatively straightforward. 

That said, the process of paying off your mortgage balance in full was likely time-consuming and arduous, so borrowing some of that money back should be closely evaluated and compared to all borrowing alternatives to ensure that it's the right move for your equity both now and over the repayment period.