When you’re ready to access the equity in your home, you have three main options: taking out a second mortgage, getting a home equity loan, or entering into an equity sharing agreement. Each option has its own set of pros and cons, so it’s important to carefully consider your needs and objectives before making a decision.
Second Mortgage vs. Home Equity Loan vs. Equity Sharing Agreement
If you’re looking to tap into the equity in your home, you have three main options: taking out a second mortgage, getting a home equity loan, or entering into an equity sharing agreement. Here’s a quick overview of each option:
Second Mortgage: A second mortgage is a loan that’s secured by your home equity. Home equity is the portion of your home’s value that you own outright, and it can be used as collateral for a loan. The biggest advantage of a second mortgage is that it usually comes with a lower interest rate than other types of loans. However, it also typically has a longer repayment period, which means you’ll end up paying more interest over the life of the loan.
Home Equity Loan: A home equity loan is also a loan that’s secured by your home equity. However, unlike a second mortgage, a home equity loan typically comes with a fixed interest rate and a shorter repayment period. This makes home equity loans ideal for large, one-time expenses such as home renovations or medical bills. The downside of a home equity loan is that it can be difficult to qualify for if you have bad credit.
Equity Sharing Agreement: An equity sharing agreement is an arrangement in which two or more people share ownership of a property. Equity sharing agreements are typically used when people are buying a property together and don’t have the full amount of the purchase price. In an equity sharing agreement, each person owns a percentage of the property and is responsible for a share of the mortgage payments. The biggest advantage of an equity sharing agreement is that it can make buying a property more affordable. However, it’s important to note that equity sharing agreements can be complex and should be carefully reviewed by an attorney before you sign anything.
Which Option is Right for You?
The best way to decide which option is right for you is to consult with a financial advisor or lender. They can help you compare your options and choose the one that best meets your needs.