Written by Daniel Driggs | Last Updated October 30th, 2019Daniel Driggs is a Content Marketing Strategist. Majoring in Marketing, Daniel enjoys spending time with his wife, exercising, and fixing up his home.
Home equity is the largest asset most people have, yet many have no idea how to access it. When you need money, is your home equity the smartest asset to tap into? Options like a refinance, reverse mortgage, or even new products like “Sell and Stay” each have their own pros and cons. This guide will help you decide which option is right for you.
Refinancing your home means getting a different mortgage than the one you already have for your property. This allows you to pay off your old mortgage, start with a new interest rate, and access the equity you have in your house. You can either take the money from your equity for yourself or use it towards paying off your new mortgage.
- Lower your interest rate — Generally if you are looking to lower your rate, a half point deduction will save you enough money to cancel out the closing costs within a few years.
- Access to your equity — The equity you have is the amount of money you are entitled to with a reverse mortgage. Excluding the closing cost fees you are able to take the equity you own in your home and place it in your pocket.
- Must own 1/5th of your home — If you are looking to qualify for a refinance, in most cases you must own at least 20 percent of your home.
- Mortgage payment penalty — Some companies will charge a large penalty for paying a mortgage payment early. These companies do this to keep you from refinancing.
- Closing costs — Closing costs are a part of every mortgage, and these can be a big factor in whether or not you can refinance. In some cases, closing costs can be paid with your interest, but in the long run this can cost you much more than just paying the closing costs upfront.
Refinance is a tool thousands are using to get lower interest rates and access to the equity in their homes. Each company has different rates and fees. Check out some of our favorite options: Best Home Loan Companies
Reverse mortgage (HECM model)
Reverse Mortgage is a program for people over the age of 62. The widely used Home Equity Conversion Mortgage(HECM) was created so individuals could use the equity in their home to supplement them with more income. Individuals can continue to live in their homes, get paid for their equity, and then when they die or move, they can sell the property in order to pay back the loan.
- Bridges Medicare gap from 65 to 62 — Customers will get access to a large asset at 62. This allows many to retire early without moving from their home.
- Never owe more than your home is worth — In some cases, the homes value will depreciate and sell for less than the loan is worth. In these cases, the Federal Housing Association has protections in place to ensure you will never need to pay more than the house is worth.
- Usually tax free money — Reverse mortgages generally do not affect Social Security and Medicare benefits. The proceeds of the loan are usually tax-free.
- Upfront fees — With closing costs, origination fees, and a insurance premium, customers will spend thousands of dollars in order to receive this loan. These fees can be added to your interest rate, but it can save you money in the long run if you decide to pay for these fees upfront.
- Interest rates — Although its interest rates tend to be lower than most interest rates in the mortgage industry, it still is required and charged throughout the life of the loan. Interest on reverse mortgages is not deductible on income tax returns until the loan is paid off in part or whole.
- Homeowner fees — You will still own your home after a reverse mortgage closes, which means you are still in charge of paying the traditional homeowner fees. You still must pay property taxes, insurance, and maintenance costs. Those who fail to pay their traditional home costs are still in danger of foreclosure. You will also pay a monthly servicing fee, usually around $30, for someone to make sure that you are up to date on your payments.
Find out some of our favorite Reverse Mortgage Companies
Sell and Stay
Sell and Stay is a new idea created by EasyKnock, that allows customers to sell their home to EasyKnock, continue living in their home, start paying rent, and then buy their home back whenever. It is a great option for those who can’t refinance, or reverse mortgage.
- One of the quickest ways to access home equity — Through this transaction you will receive 70 percent of the equity in your home upfront and it can be accessed in as little as 21 days.
- Easier to qualify than refinance and reverse mortgages — EasyKnock’s Sell and Stay Program does not have the same rigid limitations that refinance and reverse mortgages have. EasyKnock works best for individuals with homes valued at $150,000 and above and have at least 50 percent equity.
- Buy your home back whenever — You can purchase your home back from EasyKnock for the cost of the loan plus a fee. This can be paid at anytime and once you do, EasyKnock will give you your home back without any issues.
- Do not own your home — Although you are not getting all of your money up front, EasyKnock is the primary owner of your home until you buy it back. If you decide to move, EasyKnock will sell your home and give you the rest of the money it owes you.
- Immediate and future fees — There are many fees involved throughout this process such as closing costs, EasyKnock fee, rent, and the repurchasing price.
- Brand new idea — Although this company’s idea works great on paper, it is still growing and experiencing major changes through these first couple of years.
If you are among those who can not refinance their home or receive a reverse mortgage, this option can be right for you. To understand the process in more depth, check out our review of them.