4 Simple Ways to Get Cash From Your Home

Estimated reading time: 4 minutes

With the recent surge in property values nationwide, many homeowners may have significant equity to convert into cash. Several avenues are available to convert this equity. The most obvious one is to sell the property, although that window could shrink depending on your geography, the current interest rate environment, or how well you have maintained your home. 

If your goal is to remain in your home, however, borrowing against your home’s equity allows you to tap into that equity for cash while still retaining ownership. Homeowners can borrow against their equity using four primary methods, which can be up to 85-90% of the property’s value minus your outstanding mortgage balance.

• Home Equity Loan – a lump sum loan secured by the equity in the borrower’s home. The borrower receives the entire loan amount upfront and repays it over a set term, usually with a fixed interest rate. This option may suit homeowners who require money upfront and who prefer the predictability of a fixed interest rate and payment terms. Home equity loans may be a better option for homeowners who plan to complete their remodeling project in one considerable upfront expense or need cash to consolidate debt or for another specific need.

• Home Equity Line of Credit (HELOC) – a revolving line of credit with a variable interest rate that allows homeowners to borrow against the equity in their home as needed. The borrower only pays interest on the amount borrowed and withdraws from the credit line multiple times over a set timeframe. This option may be suitable for homeowners who desire flexibility and want only to borrow what they need when they need it.
  
  HELOCs may also be a good choice for homeowners who plan to complete their remodeling project in stages or need the funds for ongoing expenses such as a child’s college tuition. However, the interest rates are variable and could rise over time. HELOCs may offer more flexibility in terms of repayment. They also may have lower upfront fees than home equity loans but may also have additional costs, such as annual and early termination fees.

Two lesser-known options for getting cash out of your property are reverse mortgages, which normally appeal to older individuals, and home equity sharing, in which an investment company effectively buys a portion of your home’s value for a lump sum payment to you and a share of the future change in your home equity. As always, the best option depends on the homeowner’s financial situation and goals.

• Reverse Mortgage – a type of home loan that allows homeowners, typically ages 62 and older to borrow against part of their home’s equity. Unlike a regular mortgage in which the homeowner makes payments to the lender, the lender makes regular payments to the homeowner. The Federal Trade Commission provides pros and cons of this approach and how they differ from regular home equity loans and HELOCs. Bankrate also offers an article with details on how reverse mortgages work and how to go about the next steps.

• Home Equity Sharing – a financial transaction sometimes compared to an investor buying stock in a company. In these situations, the Equity Sharing provider becomes an investor in your property. There are numerous variations of these types of arrangements and, as with the other options listed, there are many pros and cons to this approach as well.

It is essential to weigh the pros and cons of each option, carefully read any loan or finance agreement terms and conditions, and consult with a financial advisor if you have any questions or concerns. I would be happy to discuss all of these options with you and recommend a financial advisor or mortgage broker to help determine which is the best approach to receive your equity.