Differences Between Cash-Out Refinance vs. Equity Sharing Agreements
3 Important Considerations Before Choosing a Cash-Out Refinance or Equity Sharing Agreement
When it comes to securing funding for your home, you have several options available to you. Two popular financing options are cash-out refinances and equity sharing agreements. But which one is right for you?
Before making a decision, it’s important to understand the key differences between these two financing options and to carefully consider all the potential pros and cons.
What is a Cash-Out Refinance?
A cash-out refinance is a type of mortgage refinance loan that allows you to take out cash from the equity you’ve built up in your home.
With a cash-out refinance, you’ll take out a new loan that’s larger than your current mortgage balance. You can use the extra cash to make improvements to your home or to consolidate other debt.
The downside of a cash-out refinance is that you’ll end up with a higher monthly mortgage payment. You’ll also be paying interest on the new loan for the life of the loan, which could be 15 or 30 years.
What is an Equity Sharing Agreement?
An equity sharing agreement is a type of financing arrangement in which you sell a portion of your home’s equity to an investor in exchange for a lump sum of cash.
With an equity sharing agreement, you’ll retain ownership of your home. But, the investor will have a stake in the property and will share in any profits or losses when the property is eventually sold.
One advantage of an equity sharing agreement is that you won’t have to make any monthly payments. But, you will give up some control over your home and you could end up owing money to the investor if the value of your home decreases.
3 Considerations Before Choosing a Cash-Out Refinance or Equity Sharing Agreement
1. How Much Equity Do You Have in Your Home?
If you don’t have a lot of equity built up in your home, you may not be able to qualify for a cash-out refinance. Lenders typically won’t allow you to borrow more than 80% of your home’s value.
So, if your home is worth $200,000 and you still owe $160,000 on your mortgage, you may only be able to borrow an additional $40,000 through a cash-out refinance.
2. What are Your Financial Goals?
Before choosing a cash-out refinance or equity sharing agreement, it’s important to think about your financial goals.
If you need money for a one-time expense, such as home renovations or debt consolidation, a cash-out refinance may be the right choice. But, if you’re looking for ongoing income, an equity sharing agreement could be a better option.
3. What are the Risks and Rewards?
As with any financial decision, there are risks and rewards associated with both cash-out refinances and equity sharing agreements.
With a cash-out refinance, you could end up paying more interest over the life of the loan. But, you won’t have to give up any ownership stake in your home.
With an equity sharing agreement, you won’t have to make any monthly payments. But, you will be giving up a portion of your home’s value and you could end up owing money to the investor if the value of your home decreases.
Carefully weigh the risks and rewards of each option before making a decision.
The Bottom Line
If you need money for home improvements or to consolidate debt, you may be considering a cash-out refinance or equity sharing agreement. Before making a decision, it’s important to understand the key differences between these two financing options and to carefully consider all the potential pros and cons.
© 2025, Exuity