What's the Best Way to Tap Your Home Equity? A Loan, a Reverse Mortgage, or an Equity-Sharing Agreement?
As home values continue to rise across the country, more and more homeowners are looking to tap into their equity. But with so many options available, it can be difficult to decide which route to take. Here's a look at three popular ways to access your home equity and some things to consider with each.
Home Equity Loan
A home equity loan is a type of second mortgage that allows you to borrow against the equity you've built up in your home. Home equity loans typically have a fixed interest rate, meaning your monthly payments will stay the same for the life of the loan.
One thing to consider with a home equity loan is that you'll be putting your home up as collateral, which means if you default on the loan, you could lose your home. Home equity loans also usually have closing costs, so be sure to factor that into your decision.
A reverse mortgage is a type of loan that allows homeowners aged 62 and older to tap into their home equity without having to make monthly payments. Instead, the loan is repaid when the borrower dies, sells the home, or moves out of the home.
One thing to consider with a reverse mortgage is that the loan balance can grow over time, which could end up putting your heirs at risk of having to sell the home to repay the loan. Additionally, reverse mortgages typically come with high fees, so be sure to do your homework before deciding if this is the right option for you.
Equity Sharing Agreement
An equity sharing agreement is a type of arrangement in which two parties agree to share the ownership and profits of a property. In most cases, the parties will also agree to share the risks and responsibilities involved in owning the property.
One thing to consider with an equity sharing agreement is that it's a long-term commitment, so be sure you're comfortable with the person you're entering into the agreement with. Additionally, you'll want to be sure that you have a clear understanding of how the agreement will work and what will happen if one party wants to sell their share of the property.