When it comes to taking out a loan against the value of your home, there are several options to choose from. Two of the most popular are second mortgages and home equity lines of credit (HELOCs). But which is the right choice for you?
It depends on a number of factors, including your financial situation and how you plan to use the money. Here's a look at some of the key considerations to keep in mind when deciding between a second mortgage, HELOC or equity sharing agreement.
Second Mortgage vs. HELOC: How They Work
With a second mortgage, the lender loans you a lump sum of money that you repay over a fixed period of time, usually 10 to 15 years. A HELOC works like a credit card in that you're approved for a certain amount of credit and can borrow against it as needed, up to the limit. The repayment period is typically shorter than a second mortgage, and you'll only have to pay interest on the amount you borrow.
Equity Sharing Agreement: Pros and Cons
An equity sharing agreement is a way to finance the purchase of a home without taking out a loan. Instead, you and the other party (usually a family member or close friend) agree to share the ownership of the property. The advantage of this arrangement is that you can avoid the debt associated with a mortgage or HELOC. However, it's important to consider the potential risks involved in sharing ownership of a property, such as disagreements over repairs or maintenance, before entering into an equity sharing agreement.
Second Mortgage vs. HELOC: The Bottom Line
There's no one-size-fits-all answer when it comes to choosing between a second mortgage, HELOC or equity sharing agreement. The best way to decide which option is right for you is to speak with a financial advisor who can help you understand the pros and cons of each and make an informed decision based on your unique circumstances.