Here’s How To Tap Into Your Home’s Equity Without Taking Out A Loan
Right now, anyone who owns their own home has an unprecedented financial opportunity sitting in their lap. With real estate prices soaring all over the country, home equity—a valuable resource that normally takes decades to acquire—is at an all-time high. In fact, 42 percent of homeowners are officially classified as equity rich, which means their home is worth twice as much as their mortgage. If you own a home, you need to act fast to lock in these equity gains before it’s too late. And an innovative company called Hometap gives homeowners a new way to do that.
In the past, if you wanted to cash out your home equity, your only option was to go to a bank and take out a home equity loan or a home equity line of credit. That would give you a big lump sum of cash up front, which you could use however you wanted. But it would cost you a ton of money in the long run in the form of interest. And you’d have another monthly bill to worry about.
Today, thanks to Hometap, you now have a third option.
What Is Hometap?
Hometap gives you a lump sum of money up front based on the estimated value and equity of your home. You can then use that money to pay off debts, perform renovations, purchase more real estate, or pay for education—just like you would use the money you got from a home equity loan. The difference is that, with Hometap, there are no monthly payments, and there is no interest.
Why? Because Hometap is an investor, not a lender. They give you money in exchange for an agreed-upon share of the future value of your property. You then pay them their share at the end of your investment’s effective period, which is ten years — but you can settle the investment before then through a buyout with savings, refinance, or sale of your home with no prepayment penalties.
Consider this example. Let’s say you purchased your home for $300,000, but now it’s worth an estimated $450,000. If you only owe $200,000 on your mortgage, that means you’re sitting on $250,000 worth of equity. You’re already planning to move sometime in the next ten years, and you’d like to use some of that equity to pay off your student loans. Hometap might offer to invest $50,000 in exchange for a 15 percent stake in your property. So you take them up on that offer, and you pay off your student loans.
Now, let’s fast forward eight years. It’s time to sell your house. But since you made your agreement with Hometap, you’ve paid down your mortgage even further, and the value of your home has gone up. If you sell for $500,000, you will pay Hometap $75,000. However, now you only have $150,000 on your mortgage, which means your profit is $275,000. Your equity still increased by $25,000, but you’ve also saved a ton of money by not paying interest on your student loans.
Sounds pretty good, right?
Hometap Shares In The Wins (And Losses)
Of course, the number one question most people have at this point is, what happens if, for some reason, the value of your home goes down over the course of your investment’s effective period?
The answer to that question is the best thing about Hometap. Because they’re a true investor, they share in both profits and losses. If the housing market crashes, you still only pay Hometap 15 percent of the sale price of your home.
Obviously, Hometap is not the best option for every situation. For example, if you do not plan to sell your home, you need to have a plan for how you would repay Hometap’s investment at the end of the ten-year term — whether that’s with savings or a refinance. However, when the circumstances are just right, Hometap gives homeowners an incredible opportunity to tap into equity without flushing money down the drain on interest.
If you own your home, click here to see if Hometap might be right for you.