Have a Low Mortgage Rate? How Some U.S. Homeowners Are Accessing Their Equity Without Refinancing
If you locked in a low rate, a cash-out refinance can mean giving it up. Here is another option worth knowing about, and what it costs.
If you bought or refinanced a few years ago, your mortgage rate may be far below what lenders offer today. That is great for your monthly budget. But it creates a dilemma when you need cash for a renovation, high-interest credit cards or a big life expense.
The lock-in problem
A cash-out refinance replaces your current mortgage with a new, larger one at today's rates. For many owners, that means a higher rate on their entire balance, not just on the cash they take out. A home equity loan or HELOC leaves the first mortgage alone, but adds a new monthly payment on top of it.
So many homeowners in the U.S. simply sit on their equity, even when they could use it.
Your options, compared
| Cash-out refinance | HELOC / home equity loan | Home equity investment | |
|---|---|---|---|
| Your current mortgage | Replaced with a new loan at today's rates | Stays as it is | Stays as it is |
| New monthly payment | Yes, on the new, larger loan | Yes, on the new line or loan | No monthly payments |
| How cost works | Interest plus closing costs | Interest plus fees | Fees plus a share of the home's value at settlement |
| When it ends | New mortgage term | Loan or draw/repayment term | Within the investment term: up to 10 years at Hometap |
Loan terms vary by lender. Home equity investment details shown are for Hometap.
A third route: a home equity investment
With a home equity investment, you receive cash today in exchange for a percentage of your home's future value. Your existing mortgage stays exactly as it is, and there are no monthly payments on the investment.
Hometap is one of the companies offering this. A Hometap home equity investment gives you access to your equity in exchange for a percentage of your home's future value, with:
- $15,000 to $600,000 available, up to 25% of your home's value
- No monthly payments for up to 10 years
- No impact on credit profile or debt-to-income ratio during your investment term
- Settlement within 10 years through savings, a refinance or a sale of your home, for example by refinancing later if rates fall
What homeowners use it for
Paying off higher-interest debt, renovating, building a cash cushion, funding a small business, helping with education costs, or preparing to retire more comfortably.
The trade-off, plainly
You are not making monthly payments, but the investment has a cost. Hometap charges a fee up front and receives its agreed percentage of your home's value when you settle. If the home appreciates, the settlement amount grows with it. It is worth comparing that against the monthly payment you would take on with a HELOC or the higher rate on a cash-out refinance.
Are you a candidate?
You typically need a FICO score of 585 or higher, at least 25% equity, and a home in a state where Hometap invests. Hometap invests in select states only.
Applications and properties are reviewed one by one, so not everyone qualifies.
Hometap says checking whether you pre-qualify takes less than two minutes, and you can review the details of any offer before deciding.
See if you pre-qualify with Hometap →Available in select states. Not all applicants qualify.
Disclosure: This is sponsored content paid for by Hometap through an advertising partner and published by Nadlan Projects. It is provided for general information only and is not financial, legal or tax advice. Hometap Home Equity Investments are available in select states only. Not all applicants will qualify; a minimum FICO score of 585 and at least 25% home equity are required, and each application is evaluated individually. Investment amounts range from $15,000 to $600,000, up to 25% of home value. Fees apply. At settlement, Hometap receives a percentage of your home's value, which may be more than the amount you received. Hometap Equity Partners, LLC, NMLS ID# 2467867, 361 Newbury St, 5th Floor, Boston, MA 02115. Images are illustrative.