Life can be expensive and unpredictable. We all find ourselves short on funds for something, sooner or later. However, 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 additional options. (“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). Read on to learn more about how to access the equity in your home.
Access Equity by Refinancing
Cash-Out RefinanceIf 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.
Lower interest rates are certainly good news, but if you're using the cash to pay off debt, you might just be delaying the inevitable, and now with your home as collateral. Using the funds to renovate and increase the value of your home is a better option; don't forget, though, that you've restarted the clock, so to speak, on all of your housing debt. As a result, you will increase your lifetime interest costs, even if the deal is sweeter.
Access Equity Without Refinancing
Home equity loanSimilar 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. Though you can get a home equity loan without refinancing, such loans are often called a "second mortgage" because you will have an additional monthly payment on top of your regular mortgage.
Home Equity Line of Credit (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. During the draw period, you borrow and pay interest on that which you use. Then, during the repayment period, your monthly payments increase.
It's important to note 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. Most HELOCs have variable interest rates, too, which means that the rate can change at any time and you will have to adjust your budget accordingly.
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 might pay interest on money they didn’t need in the first place. So while a HELOC does make it possible for one to access their equity without refinancing, it might not be the best option for your situation.
A personal loan does not use your home as collateral, but you’ll need a high credit score to qualify for the best rates. Even then, those rates will almost always be higher than with home equity financing. And because a personal loan does accrue interest, it is a form of debt.
How to Access Home Equity Without Refinancing or Adding Debt
Home Sale Leaseback
A home sale leaseback is a real estate transaction where a homeowner sells their property to an investor or a company and becomes a tenant, paying rent to continue living in the same property.
This arrangement can be useful for homeowners who need to access the equity in their home but wish to continue living in the same place. However, the homeowner loses ownership and all of its advantages, such as building equity over time. They will also not have control over the same aspects that they previously did, and potentially even face rent increases if there is a fixed term that expires.
Unison Equity Sharing Agreement
Unison is the world’s first home equity sharing 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, incurring extra interest charges or making 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 15% of the current market value of your home. 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.
When you sell your house, the return on the investment is split depending on the percentage invested. 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.
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.
See how much equity you can access with a free estimate that has no obligation, and no impact on your credit score.