.jpg){kind=logo}
Homeownership brings the joy of having a place to call your own and the potential for accumulating home equity. This wealth, often overlooked, can be tapped into through various methods. You can use your home equity to build wealth through smart financial decisions such as paying off debt or creating an emergency fund.
Below, we'll cover six ways to free up your home’s equity, including how The District PHX can help.
Using Home Equity To Pay Off Debt (and More)
1. Home Equity Line of Credit (HELOC)
A Home Equity Line of Credit (HELOC) functions much like a credit card, allowing you to borrow against the equity in your home up to a specified credit limit. However, unlike a credit card, a HELOC is secured by your home. It comes with two distinct phases: the draw period, where you can access your home equity, and the repayment period. Managing monthly payments is crucial, as missing them could lead to foreclosure.
The downside of this option is that a HELOC does not include a fixed interest rate. This could be a serious problem, especially when you’ll likely already face a higher payment during the repayment period.
2. Home Equity Loan (HEL)
Also known as a second mortgage, a Home Equity Loan provides a lump sum payment with a fixed interest rate. It doesn't replace your existing mortgage, allowing you to retain a favorable interest rate. Monthly payments cover both principal and interest on the new mortgage amount while you continue paying your existing mortgage.
While this may be a suitable option for many, keep in mind that since this is a loan based on your home’s value, you may become unable to sell your home or move should the value of your home decrease.
3. Cash-out Refinancing
In cash-out refinancing, a new mortgage replaces the existing one, and the excess borrowed amount can be used for various purposes, such as home improvements or debt consolidation. This method offers a fixed monthly payment — similar to a home sale-leaseback — simplifying financial planning compared to HELOCs and home equity loans.
If you have a solid financial plan for your future, this could work. However, you are increasing your overall debt with this method. If you are already struggling with your debt-to-income ratio, this may not be your best option.
4. Home Equity Investment
Equity sharing agreements, a newer option, let homeowners "sell" a share of their home's future appreciation to investors. No new monthly payments are required, and homeowners receive upfront cash. Investors share the home's value appreciation at the end of the agreement term. This can let you use your home equity to build wealth since it’s not a loan, but there are risks because you may end up paying the investor way more than what was given to you originally.
5. Reverse Mortgage
Designed for homeowners aged 55 or older, a reverse mortgage allows you to access your home equity without monthly payments. The loan is repaid when you no longer live in your home through other assets or the sale of the home. This option provides flexibility in receiving funds as a lump sum, fixed monthly payment, or line of credit.
6. Innovative Solutions From The District PHX
Traditional home sales may only be a good fit for some people considering using equity in a home. The District PHX offers two alternative ways to access home equity, catering to different circumstances.
Lock and Move Program:
The Lock & Move program allows homeowners to lock in their equity without the hassles of traditional home sales like listing, showings, and extended closing times. This program requires no appraisals, repairs, or commissions. Instead, The District PHX pays off the mortgage within a few days, providing homeowners like yourself with the remaining purchase price and the ability to sell on your terms.
Unlock & Stay:
The Unlock & Stay program is a residential sale-leaseback in which you sell your home to The District PHX without the hassle of moving. Instead, you lease your home and can use your home’s equity much faster than other means.
Wondering How To Use the Equity in Your Home?
Whether you plan to pay off debt, build your wealth, or something else, deciding how you access your home’s equity is the very first step. At The District PHX, we want you to truly understand the process as well as all of your options to access your equity so you can make the best choices for you and your family.
Whether opting for traditional methods or exploring our innovative solutions, you can (and should) tailor your approach to meet your financial goals. For more information on what The District PHX can offer, speak with our team.
