Contrasting Cash-Out Refinance vs. Equity Sharing Agreements vs. HELOCs
3 Ways to Access Your Home's Equity - And Which One Is Best for You
When you own a home, you have the opportunity to build equity - the portion of your home's value that you own outright. And as your home appreciates, so does your equity. You can access this equity in a number of ways, including a cash-out refinance, an equity sharing agreement, or a home equity line of credit (HELOC). But which one is best for you?
Let's take a look at the pros and cons of each option:
Cash-Out Refinance
A cash-out refinance allows you to tap into your home's equity and get cash back at closing. This cash can be used for any purpose, including home improvements, debt consolidation, or investing.
The biggest advantage of a cash-out refinance is that you can lock in a lower interest rate than you would with a home equity loan or HELOC. This can save you money over the life of the loan.
Another advantage is that you'll only have one monthly payment to make. With a home equity loan or HELOC, you'll have a separate loan with a separate payment.
The downside of a cash-out refinance is that you'll have to pay closing costs, which can add up. These costs can include appraisal fees, loan origination fees, and title insurance.
Equity Sharing Agreement
An equity sharing agreement allows you to tap into your home's equity without taking out a loan. Instead, you sell a portion of your home's equity to an investor in exchange for cash.
The advantage of an equity sharing agreement is that you don't have to make monthly payments. The investor will simply receive a portion of the profits when you sell your home.
Another advantage is that you won't have to pay any closing costs.
The downside of an equity sharing agreement is that you won't have as much control over your home. And if your home doesn't appreciate in value, you could end up selling it for less than you would have if you had taken out a loan.
Home Equity Line of Credit (HELOC)
A home equity line of credit (HELOC) allows you to borrow against your home's equity. You can use the money for any purpose, and you only have to make monthly interest payments until the loan is paid off.
The advantage of a HELOC is that you can borrow only what you need, when you need it. This flexibility can be helpful if you have unexpected expenses or want to make a large purchase.
Another advantage is that you can usually get a lower interest rate with a HELOC than you would with a home equity loan.
The downside of a HELOC is that you could end up owing more than your home is worth if your property value decreases. And if you don't make your monthly payments, you could lose your home to foreclosure.
So, which option is best for you? It depends on your individual circumstances. If you need cash now and are comfortable with the risks, a cash-out refinance may be the way to go. If you're not sure how much money you'll need or when you'll need it, a HELOC may be a better option. And if you're not interested in taking out a loan, an equity sharing agreement could be the right choice.
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