4 Simple Ways to Get Cash From Your Home

You’ve been making mortgage payments, taking care of your home, and watching its value change over the years. Along the way, you may have built something pretty significant: equity. Selling the house is one way to turn that equity into cash, but it isn’t the only possibility. If staying put is part of your plan, there are several ways you may be able to put some of that equity to work. Just remember—unlocking equity isn’t the same thing as finding free money. Every option comes with a tradeoff.

Think of home equity as the difference between what your home is currently worth and what you still owe on loans secured by it. Depending on your circumstances, you may be able to access part of that value without putting a For Sale sign in the yard.

Here are four ways it can happen—and, more importantly, what you need to know before getting excited about the cash.

• Home Equity Loan – Need a specific amount for a specific purpose? A home equity loan generally provides the money as one lump sum and is repaid over a set period, commonly with a fixed interest rate.
  
  That predictability can be attractive for a major renovation or another large planned expense. You know what you’re borrowing and can generally know what the payment will be.
  
  But here’s the part that matters just as much as the check: you’re creating new debt secured by your home. Failure to repay could ultimately put the property at risk. Before saying yes, compare the rate, fees, closing costs, payment, and total cost—not just the amount of cash you’ll receive.

• Home Equity Line of Credit (HELOC) – Maybe your plans don’t come with one neat price tag. A HELOC gives you a revolving line of credit secured by your home, allowing you to generally borrow as needed during a set draw period.
  
  That can be useful for a renovation happening in stages or other expenses that don’t arrive all at once. You generally pay interest based on what you’ve actually borrowed rather than the full amount available.
  
  Flexibility, however, comes with something to watch: HELOCs commonly have variable interest rates. Rates and payments can rise, and the rules can change when the draw period ends and repayment begins. Know what today’s HELOC looks like—but also ask what tomorrow’s could look like.

The next two possibilities play by different rules. They’re worth knowing about, but they’re also good examples of why “accessing equity” and “borrowing money” aren’t always the same thing.

• Reverse Mortgage – For some older homeowners who want to remain in their homes, a reverse mortgage can provide another way to access equity. The most common type, the federally insured Home Equity Conversion Mortgage (HECM), is generally available to qualifying homeowners age 62 and older.
  
  Depending on the loan and circumstances, proceeds may be available in different ways. Instead of making traditional monthly mortgage payments, interest and fees are generally added to the balance, so the amount owed increases over time.
  
  You still own the home and still have responsibilities, including using it as your principal residence, paying property taxes and homeowners insurance, and maintaining the property. The loan generally becomes due when you sell, permanently move out, or the last surviving borrower dies.
  
  This is one of those options where understanding the long game really matters. The Federal Trade Commission provides information about reverse mortgages, costs, and questions worth asking before moving ahead.

• Home Equity Contract or Investment – Here’s a newer twist on accessing equity. Some companies offer a lump-sum payment today in exchange for a future payment tied in some way to your home’s value.
  
  You may see terms such as home equity investment, home equity agreement, or home equity sharing. The names may sound simple. The contracts aren’t necessarily simple at all.
  
  Before focusing on the cash you’ll receive today, find out how the future payment is calculated, what fees apply, what happens if your home’s value rises or falls, how improvements affect the calculation, whether the provider places a lien on the property, and exactly when the obligation must be repaid. Future-you deserves to understand the deal present-you is making.

YOUR EQUITY GIVES YOU OPTIONS. USE THEM WISELY.
Start with the reason you want the money. Then look beyond what’s available today and consider what the decision could mean a few years from now.

Compare total costs, payments, fees, interest-rate risk, repayment terms, and what happens if life changes direction. A move, retirement, income change, or unexpected expense can make a financial commitment look very different later.

An appropriate mortgage professional, financial advisor, housing counselor, attorney, or other qualified professional can help you understand the details and evaluate a product for your circumstances.

And don’t forget that borrowing against the house isn’t your only big-picture option. If selling, downsizing, or making another real estate move might accomplish what you’re trying to do, I can help you understand your home’s current market position and what those choices could look like.

Building equity can take years. Accessing it can happen much faster. Before you do, make sure the opportunity you’re creating today still makes sense for the future you’re planning tomorrow.