Contrasting Second Mortgages vs. Cash-Out Refinance vs. Equity Sharing Agreements
3 Mortgage Options for Homeowners in Financial Distress
If you’re a homeowner in financial distress, you may be wondering what your mortgage options are. You may be considering a second mortgage, a cash-out refinance, or an equity sharing agreement. Here are some things to consider with each option.
Second Mortgage
With a second mortgage, you borrow against the equity you’ve built up in your home. The interest rate on a second mortgage is usually higher than the rate on your first mortgage. You may also have to pay closing costs.
A second mortgage can be a good option if you need a large amount of money and you don’t want to sell your home. However, you need to be sure you can afford the monthly payments on both mortgages. If you can’t, you could end up losing your home.
Cash-Out Refinance
A cash-out refinance allows you to refinance your existing mortgage for more than you currently owe and take the difference in cash. For example, if you owe $100,000 on your mortgage and you refinance for $150,000, you’ll get $50,000 in cash.
Like a second mortgage, a cash-out refinance usually has a higher interest rate than your first mortgage. And, you’ll have to pay closing costs. But, a cash-out refinance can be a good option if you need a large amount of money and you have good credit and equity in your home.
Equity Sharing Agreement
An equity sharing agreement is an arrangement in which you sell a portion of your home’s equity to an investor in exchange for cash. The investor then becomes a partial owner of your home. When you sell your home, the investor gets their share of the profits.
An equity sharing agreement can be a good option if you need a large amount of cash and you don’t want to take on more debt. However, you need to be comfortable with the idea of someone else owning a part of your home. And, you need to be sure that you’ll be able to sell your home when you want or need to.
Which Option is Right for You?
The best option for you will depend on your individual situation. Be sure to consider all of your options and speak with a financial advisor before making any decisions.
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