July 26, 2019

How to Access Your Home’s Equity Without Adding Debt

Life can be expensive. And unpredictable. We all find ourselves short on funds for something sooner or later.

Instead of taking out a loan or loading up your credit cards, if you’re already a homeowner with equity in your home, you have some options.

The traditional possibilities


Traditionally, there are four ways to access your home equity, and they all involve banks. (“Equity” is the difference between what your home is worth and how much you owe on your loan. Your equity increases over time if the property value increases or the mortgage loan balance is paid down.)


  • Home equity loan (aka second mortgage)
  • Home equity line of credit (HELOC)
  • Cash-out refinance
  • Personal loan


Home equity loan
Similar in structure to your primary mortgage, this option could make sense if you don’t want to refinance that loan. With a home equity loan, you borrow against the equity in your home and receive a lump sum of money that you have to pay back each month within 15 years. The interest rate is usually fixed, but is typically higher than your primary mortgage.


Home equity loans are popular for homeowners with an immediate need for the entire balance, such as a medical emergency.


HELOC
Like a home equity loan, a HELOC lets you borrow against the equity in your home. The remaining value of the home provides your bank with insurance on your primary mortgage. We explain what a HELOC is here, but the main point is that a HELOC adds significantly more debt to your burden. Monthly payments are often high because they pay off more interest than principal on the outstanding balance.


Another drawback is the requirement that borrowers have to withdraw a minimum amount of money, even if it’s more than what’s needed. Interest is calculated on the amount borrowed, which means borrowers pay interest on money they didn’t need in the first place.


Cash-out refinance
If you have substantial equity in your home, a cash-out refinance lets you pay off your current mortgage by refinancing it at a higher amount and taking the difference in cash. Closing costs are usually high, but if you have a high credit score, you could qualify for a lower interest rate than your original mortgage.


Personal loan
You generally don’t need to put up collateral, but you’ll need a high credit score to qualify for the best rates. Those rates will almost always be higher than with home equity financing.

Disrupting the old way with a modern solution


Home equity loans, HELOCs and cash-out refinancing don’t serve the needs of all homeowners or homebuyers--especially when you’re dealing with a lot of debt. You’re essentially paying a bank to access the money you’ve already invested in your home.


Unison is the world’s first home co-investment company with a mission to disrupt the old ways and provide a smarter, better way to buy and own homes. Our innovative HomeOwner program lets you tap into the wealth you’ve accumulated in your home, without borrowing from a bank, extra interest charges or monthly payments. Rather than a loan, we’re a long-term investor in your home, until you decide to sell up to 30 years in the future.

Here’s how HomeOwner works


We invest up to 17.5% of the current market value of your home. So if your home is valued at $730,000, then we’ll give you up to $127,750. You can use all or a portion of this money however you want--to lower debt, renovate your home, start a business, fund your retirement or pay school tuition.We can usually provide funds to you within 30 days of submitting your application. We know that when you need money, you need it sooner rather than later.


When you sell your house, the return on the investment is divided in a 60/40 split. If the value of the home has increased, we share in the profit of our original investment. If the value has decreased, we share in the loss.


Say you accessed $50,000 of your home equity through a HomeOwner co-investment, and now you want to sell your home. If the value of your home has increased by $100,000 since the investment, you’d pay back an amount equal to the initial investment ($50,000) plus 40% of the increased value of your home ($40,000), for a total of $90,000. Meanwhile, all of the equity you’ve built with your monthly mortgage payments belongs to you.


If your home has decreased by $50,000, then you’d pay back an amount equal to our initial investment minus 40% of the loss ($40,000), which comes to $10,000. You pay less because Unison is an investment partner in your home, not a bank.


We have a vested interest in your success. And a personal one, too.