Home Equity Alternatives to a Cash-Out Refinance
Alternatives to a Cash-Out Refinance Cash-out refinancing can be a good option for homeowners who need quick access to funds, but it's not the right move for everyone. Fortunately, there are other options available to you. Take a look at these five alternatives to a cash-out refinance to see how they compare and find the solution that best suits your financial needs.



Home Equity Line of Credit

A home equity line of credit (HELOC) is a flexible, revolving line of credit that leverages your home as collateral. Similar to a credit card, a HELOC provides borrowers with a pre-approved credit limit.

How Do Home Equity Lines of Credit Work?



HELOCs let you tap into home equity and use the funds as you need them. In order to get a HELOC, you'll submit an application to a lender who will assess your home's value, the equity you own, and your financial position. Once approved, you'll receive a credit limit determined by the equity in your home.

At this point in the HELOC process, you can access any amount of funds (up to your credit limit) at any time you'd like. Once the funds are fully used, you'll begin paying off the principal and accrued interest, usually through monthly payments.

HELOC vs Cash-Out Refinance



Both HELOCs and cash-out refinancing involve taking out a loan using the equity in your home and making regular payments. A cash-out refi provides you with a lump sum of cash and the predictability of fixed interest rates. In contrast, a home equity line of credit experiences variable interest rates, but gives you the flexibility of borrowing only what you need, when you need it.

HELOC Cash-Out Refinance
Requirements You must be at least 18 years old, own at least 15% to 20% equity in your home, and have a strong credit score and reliable source of income. You must have a consistent source of income, a good credit score, and usually at least 20% equity in your home.
Disbursement Access money on an as-needed basis (up to the credit limit) via credit or debit cards, electronic transfer, or checks. Receive a lump sum payment after the new mortgage is issued.
Payment Make monthly payments on the principal and interest following the draw period. Make monthly payments just like a typical mortgage.


HELOC Pros & Cons

Below are the main advantages and disadvantages of a home equity line of credit.
Pros Cons
Tax Advantages: Depending on how you use the funds, the interest you pay on a HELOC may be eligible for tax deductions. Risk of Foreclosure: Since your home acts as collateral, defaulting on your required payments could result in the loss of your home.
Zero Closing Costs: There are no closing costs for most HELOCs. Excessive Spending Potential: If you're not disciplined with your finances, a HELOC can make it tempting to overspend.
Reduced Interest Rates: HELOC interest rates are usually lower than other forms of borrowing. Declining Property Value: You could potentially owe more on your HELOC than what your home is worth if your property value goes down.
Flexible Funds: HELOCs offer considerable flexibility in terms of when and how you are able to use your funds. Fluctuating Interest Rates: Interest rates could change over the life of the HELOC, opening the door to higher monthly payments.


Home Equity Loan

Often called second mortgages, home equity loans enable homeowners to borrow against the equity they've accumulated in their property.

How Do Home Equity Loans Work?



The first step of getting a home equity loan is submitting your application to a lender. Your lender will evaluate your credit, how much equity you've built in your home, and other factors to determine if you're approved. Then, you'll receive a rejection or lump sum based on the assessment. From there, you'll immediately begin repayment on the balance and interest accrued via monthly installments over the agreed-upon term.

Home Equity Loan vs Cash-Out Refinance



While a home equity loan involves taking out an additional mortgage (separate from your current mortgage), a cash-out refinance replaces your existing mortgage with a new, higher one. Both of these options require you to start making payments immediately, but see lower interest rates than other options. A deciding factor between the two might depend on whether or not you're comfortable having multiple mortgage loans.

Home Equity Loan Cash-Out Refinance
Requirements You must hold between 15% to 20% equity in your home, proof of stable income, a good credit score, and a good debt-to-income ratio. You must have a consistent source of income, a good credit score, and usually at least 20% equity in your home.
Disbursement Lump sum payment Lump sum payment
Payment Repay the loan immediately through monthly installments with a set interest rate. Make monthly payments just like a typical mortgage.


Home Equity Loan Pros and Cons



Below are the major benefits and drawbacks of a home equity loan.

Pros Cons
Low Interest Rates: In comparison to other types of unsecured loans, home equity loans typically have lower interest rates that will remain unaffected by market fluctuations. Additional Monthly Payment: Because a home equity loan creates a second monthly mortgage payment, it can put additional financial stress on homeowners who are already struggling.
Available to All Ages: There are no age restrictions to secure a home equity loan. Eligibility Criteria: Requirements to qualify for a home equity loan are often stricter than other types of loans.
Consistent Payments: You can appropriately plan for how much you owe each month due to the stability of a fixed interest rate. Diminished Home Equity: Should there be a significant drop in the real estate market that decreases the value of your home, your loan balance could surpass the value of your property.
Access to Funds: You can immediately put your funds to use after you receive the one-time lump sum payment. Foreclosure Risk: Failure to pay your mortgage balance could result in foreclosure and potentially lead you to lose ownership of your property.


Personal Loan

Personal loans are lump sums of money that you borrow and repay gradually. These loans are meant to provide immediate assistance for a wide range of financial demands.

  • An unsecured personal loan does not involve collateral. However, you may need to show your credit history or have a co-signer on the loan.
  • A secured personal loan requires an asset, such as a vehicle or certificate of deposit, to secure the loan.


How Do Personal Loans Work?



Personal loans don't typically require collateral. Instead, these loans provide you with lump sums of cash based on factors like your credit history. Repayment is structured through regular installments with an agreed-upon interest rate over a set loan term.

Personal Loan vs Cash-Out Refinance



There are some major differences between a personal loan and cash-out refinance.

On one hand, a personal loan offers a lump sum without having to leverage your home as collateral, which also makes this borrowing option accessible to more people. In contrast, a cash-out refinance replaces your current mortgage with a new one, so you can use the remaining balance for your financial needs.

Overall, a cash-out refi may see lower interest rates and larger funds, while personal loans tend to have shorter repayment terms.

Personal Loan Cash-Out Refinance
Requirements You must be employed with a stable income, have a low debt-to-income ratio (usually 36% or below), and have a solid credit score. You must have a consistent source of income, a good credit score, and usually at least 20% equity in your home.
Disbursement Lump sum payment Lump sum payment
Payment Repay the loan immediately through monthly installments with a set interest rate. Make monthly payments just like a typical mortgage.


Personal Loan Pros & Cons



Pros Cons
Flexible Use of Funds: This loan can be used for a wide range of needs including, but not limited to, funding home improvements, unexpected expenses, and consolidating debt. Additional Fees: Depending on the lender, there may be additional fees like prepayment penalties, origination fees, and more. Ask your lender about these costs before applying.
Fewer Requirements: Compared to other types of loans, unsecured personal loans are usually easier to qualify for. Credit Qualifications: To avoid challenges securing the loan or higher interest rates, you'll need a good credit score.
No Risk of Foreclosure: As opposed to cash-out refinance, you do not need to use your home as collateral. Default Risk: If you do not keep up on payments, you could potentially damage your credit score and lose assets.
Quick Access: With a personal loan, you can quickly receive your cash and put it towards pressing expenses. Interest Rates: In comparison to other forms of borrowing, interest rates could be higher for personal loans.

Reverse Mortgage

A reverse mortgage loan is a financial option available to homeowners ages 62 and older who wish to convert part of their home equity into cash. This loan is much like a regular mortgage, but instead of paying the lender, the homeowner is the one receiving regular payments.

How Do Reverse Mortgages Work?



Reserve mortgages involve sending in an application, undergoing a home appraisal, and, after approval, receiving a disbursed amount of money based on your home equity. In contrast to a conventional loan, you do not make payments to the lender. Rather, you'll receive payments that you can use to cover various costs or to supplement your income. A reverse mortgage is repaid when you sell your home or pass away.

Reverse Mortgage vs Cash-Out Refinance



Reverse mortgages and cash-out refinance both allow you to benefit from the equity you've accumulated in your home. A cash-out refinance is closer to a traditional mortgage, as it involves making regular monthly payments, while a reverse mortgage does not. A reverse mortgage is only an option for borrowers over the age of 62.

Reverse Mortgage Cash-Out Refinance
Requirements You must be at least 62 years old and have a significant amount of equity in your property. You must have a consistent source of income, a good credit score, and usually at least 20% equity in your home.
Disbursement You can receive funds through a line of credit, monthly payments, a lump sum, or a combination of these options. You'll be given a lump sum after the new mortgage is issued.
Disbursement You can receive funds through a line of credit, monthly payments, a lump sum, or a combination of these options. You'll be given a lump sum after the new mortgage is issued.
Payment You will not experience repayment during the loan period. Typically, the balance is paid off or refinanced when you sell your home or pass away. Just like a typical mortgage, you will make monthly payments.


Reverse Mortgage Pros & Cons



There are many pros and cons to a reverse mortgage, including the ones below.

Pros Cons
Tax Breaks: You are not required to pay taxes on the funds that you receive from your reverse mortgage. Added Fees: Expenses related to a reverse mortgage include closing costs, attorney services, origination fees, monthly servicing fees, and other additional charges.
Tax Benefits: The growth of the investment is tax-deferred, which can be beneficial for long-term investors. Added Fees: Expenses related to a reverse mortgage include closing costs, attorney services, origination fees, monthly servicing fees, and other additional charges.
Stay in Place: While accessing the equity in your home, you can continue to live in the property and maintain ownership. Risk of Foreclosure: If you fail to keep up with payments for property taxes, maintenance fees, or other home-related costs, you could potentially lose your home.
Secure Income: The funds you receive from your reverse mortgage can offer added financial security or otherwise supplement your income. Effect on Government Benefits:Eligibility for government benefits like supplemental security income (SSI) and Medicaid could be impacted if you receive a reverse mortgage.
Variety of Payment Options: You can access reverse mortgage funds through a lump sum, a line of credit, a monthly payment, or a combination of these payment options. Interest Accrual:Over the lifetime of a reverse mortgage, interest rates increase your overall balance. This can decrease the value of the equity in your home.

Home Equity Sharing Agreement

A home equity sharing agreement allows homeowners to enter a partnership with an external party or company to access the equity in their home. As opposed to other alternatives, a Unison equity sharing agreement doesn't involve adding any debt, interest, or monthly payments. Rather, in this agreement, Unison shares in the appreciation or depreciation of the home when it's sold.

How Do Equity Sharing Agreements Work?



You can enter an equity sharing agreement with Unison as a way to tap into your home's equity. Unison's homeowner agreement offers you funds in return for a percentage of your home's change in value. We convert up to 15% of your home's value into cash, allowing you to use it towards any of your financial goals, like home renovations, debt repayment, or growing your retirement fund. Over the 30-year term, you can choose to buy Unison out, or you can settle the agreement when you list your home for sale.

Home Equity Sharing Agreement vs Cash-Out Refinance



By entering an equity sharing agreement with Unison, you can access your home's equity without incurring additional debt, unlike a cash-out refinance where you are not only acquiring another loan, but may also increase your mortgage debt.

Unison Equity Sharing Agreement Cash-Out Refinance
Requirements You'll need to have a substantial amount of equity in your home (if you don't own it), have a low debt-to-income ratio, and have good credit. You must have a consistent source of income, a good credit score, and usually at least 20% equity in your home.
Disbursement You can receive funds through a line of credit, monthly payments, a lump sum, or a combination of these options. You'll be given a lump sum after the new mortgage is issued.
Disbursement Receive up to 15% of the appraised value of your home in cash to use however you'd like. You'll be given a lump sum after the new mortgage is issued.
Payment After 30 years (or when you decide to sell), we'll share in the change in the value of your home. In some cases, the property could come down in value such that Unison shares in the downside with the homeowner. Just like a typical mortgage, you will make monthly payments.


Equity Sharing Agreement Pros & Cons



Pros Cons
Access & Flexibility: With an equity sharing agreement, you don't need to sell your home in order to access cash, and you can put funds toward any major expense. Refinancing:While you can refinance with a Unison equity sharing agreement, there may be some difficulties of which you should be aware. For example, some mortgage lenders may decline to provide new loans to you because you have subordinate financing that shares in equity or home appreciation.
Retention of Home Ownership: You can continue to live in your property and accumulate equity during the duration of your home equity agreement. Fees: Equity sharing agreements may also have costs associated with them, such as a transaction fee, and third-party costs such as appraisal and settlement costs.
No Interest or Monthly Payments: Equity sharing agreements don’t contribute to your monthly debt obligations, and won’t accrue interest. Not One-Size Fits All: Unison Agreements are unique, just like the homeowners we serve. As such, they are not the right fit for everyone. It’s important to make sure you understand the agreement and how it may impact you.


Get a free estimate with Unison today to find out how much home equity you can access, without any financial obligation or impact to your credit.






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