Best Ways to Tap Your Home Equity for Investing
July 2024
Are you interested in diversifying your portfolio by investing your home equity? You don’t have to sell your home to put your equity to work.
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Whether you are looking to buy an investment property, diversify your assets away from real estate, or maybe invest in your business, there are several ways you can access your home's equity for investing. These include shared equity agreements, a cash-out mortgage refinance, and home equity lines of credit (HELOCs).
Sell a share of your equity
Shared equity agreements are probably the most flexible method to tap into your home equity for investing. Here is our list of the top-rated shared equity agreements.
Shared equity agreements don't require getting into debt or even monthly payments because you're selling a slice of the future equity of your home. When your home is sold (or when the contract term ends), the investors receive their share from the sale. If the value of the house increases, so does the amount the investor receives. If the house drops in value, the investor also shares in the loss.
These strategies are not for everyone and there are risks attached. However, as a homeowner you do have the option of using your equity to help you reach your financial goals.
Cash out with a mortgage refinance
A cash-out refinance is a new mortgage for a larger amount than you currently owe on your home loan. The lenders give you the difference between your current mortgage balance and the balance of the new home loan in a one-time payment.
Mortgage rates are usually the lowest available for home equity financing. You can save a lot of money if you qualify for a low interest rate because mortgage rates have dropped or your credit score has improved. A cash-out refinance is particularly attractive if you are refinancing an FHA mortgage that requires you to pay mortgage insurance premiums for the life of the loan.
Compare multiple lenders before you make a decision. A recent study by Freddie Mac showed that borrowers save $3,000 on average when they compare the quotes of at least five lenders.
Open a HELOC
Home equity lines of credit (HELOCs) are a type of second mortgage that uses your home as collateral. The main difference is that instead of restricting you to a lump-sum, HELOCs allow you to withdraw money when and as you need the funds, just like a credit card.