Introduction
Owning a home is a significant investment, but it’s not uncommon for homeowners to find themselves in need of extra money. Maybe you have an unexpected expense, an upcoming renovation, or a desire to travel, but you don’t want to sell your home to access the equity. Fortunately, there are several options available to homeowners who want to get money out of their house without selling.
Home Equity Line of Credit (HELOC)
A home equity line of credit (HELOC) is a loan that allows you to borrow against the equity in your home. Similar to a credit card, a HELOC has a credit limit, and you can borrow money as you need it. The interest rates on HELOCs are typically lower than credit cards, and the interest is tax-deductible.
Pros: HELOCs offer flexibility, you can borrow as much or as little as you need, and you only pay interest on what you borrow. Additionally, the interest rates on HELOCs are typically lower than other forms of credit.
Cons: Interest rates on HELOCs can be variable, which means they can increase over time. Additionally, the loan is secured by your home, meaning your home could be at risk if you’re unable to make payments.
Reverse Mortgage
A reverse mortgage is a loan available to homeowners over the age of 62 who have significant equity in their home. With a reverse mortgage, the homeowner receives a lump-sum, monthly payments, or a line of credit in exchange for giving up equity in their home. The loan does not have to be repaid until the homeowner sells the property or passes away.
Pros: Reverse mortgages provide a source of income for retired individuals or those who need extra money but don’t want to move. Additionally, the loan does not have to be repaid until the homeowner sells the property or passes away.
Cons: Reverse mortgages can have high fees, including origination fees, closing costs, and mortgage insurance premiums. Additionally, the loan can have a significant impact on the homeowner’s inheritance, as the loan must be repaid when the homeowner dies or sells the property.
Rent Out a Room
If you have extra space in your home, renting out a room can be an excellent way to generate extra income. This option works best for homeowners who enjoy having roommates and are comfortable with sharing their space.
Pros: Renting out a room provides a relatively steady source of income. Additionally, you can typically choose the length of the lease and set your rental rate.
Cons: Renting out a room comes with potential challenges, including finding the right roommate, dealing with roommate conflicts, and managing the property.
Refinance
Refinancing is the process of replacing your existing mortgage with a new one, typically to get a lower interest rate or better terms. Refinancing can also be used to access home equity.
Pros: Refinancing can be an excellent way to reduce your monthly mortgage payments or access home equity. Additionally, the process is relatively straightforward, and there are many options available.
Cons: Refinancing typically comes with closing costs, which can be expensive. Additionally, if you’re refinancing to access home equity, your monthly mortgage payment may increase.
Home Equity Loan (HEL)
A home equity loan (HEL) is a loan that allows you to borrow against the equity in your home. Unlike a HELOC, the loan is typically for a fixed amount and is paid back over a set period.
Pros: HELs offer a fixed interest rate, which makes budgeting more manageable. Additionally, the loan terms are typically longer than other forms of credit.
Cons: The interest rates on HELs can be higher than HELOCs, and the loan is secured by your home, meaning your home could be at risk if you’re unable to make payments.
Sale-Leaseback Arrangement
A sale-leaseback arrangement is when a homeowner sells their property to a buyer and then leases the property back from the buyer. This option works best for homeowners who want to stay in their homes but need a lump sum of money.
Pros: Sale-leaseback arrangements provide a lump sum of money and allow the homeowner to stay in their home.
Cons: The arrangement can be expensive, as the buyer will likely charge rent to the homeowner. Additionally, the arrangement can result in the loss of homeownership.
Home Sharing
Home sharing is when a homeowner rents out a room or a portion of their home to someone for an extended period. This option works best for homeowners who enjoy having company and don’t mind sharing their space.
Pros: Home sharing provides a source of income and can be a great way to meet new people.
Cons: Home sharing can come with privacy concerns and can be challenging to find a good fit.
Conclusion
There are several options available to homeowners who want to get money out of their house without selling. Whether you choose a HELOC, a reverse mortgage, renting out a room, refinancing, a HEL, a sale-leaseback arrangement, or home sharing, it’s important to select the right option for your individual needs and circumstances. Be sure to research all of your options and consult with a financial advisor before making any decisions.
By exploring your options, you can find a strategy to get the money you need without having to sell your home.
