What's the Best Way to Tap Your Home Equity? HELOC vs. Reverse Mortgage vs. Sale
If you're a homeowner, you may be able to tap into your home equity to access cash for a variety of needs. But what's the best way to do it?
There are three main ways to tap into your home equity: taking out a home equity line of credit (HELOC), getting a reverse mortgage, or selling your property outright. Each option has its own set of pros and cons, so it's important to understand the details before making a decision.
Here's a closer look at each option:
Home Equity Line of Credit (HELOC)
A HELOC is a loan that uses your home equity as collateral. You can typically borrow up to 85% of your home's value, minus any outstanding mortgage balance. The interest rate on a HELOC is variable, meaning it can fluctuate with market conditions. One benefit of a HELOC is that you only have to pay interest on the amount you borrow, and not the full loan amount.
A reverse mortgage is a loan that allows homeowners 62 and older to convert a portion of their home equity into cash. The loan doesn't have to be repaid until the borrower moves out of the home or passes away. Reverse mortgages have high fees, which can eat into the equity you're trying to access.
Selling Your Property
Selling your property outright is another way to tap into your home equity. You can either sell your home through a traditional real estate transaction or use a "sale-leaseback" arrangement, where you sell your home to an investor and then lease it back from them. With a sale-leaseback arrangement, you may be able to stay in your home while still receiving a lump sum of cash.
Which Option is Right for You?
The best way to tap into your home equity will depend on your individual circumstances. If you need a large amount of cash quickly and are comfortable with the idea of taking on debt, a HELOC may be a good option. If you're looking for a way to supplement your income in retirement, a reverse mortgage could make sense. And if you're open to moving in the near future, selling your property outright could give you the cash you need while still allowing you to find a new place to call home.