Access to home equity during a financial emergency
Financial emergencies like medical expenses, car repairs, unexpected fines and even urgent animal care can easily throw a wrench into your financial plans. As rising costs and recession fears stoke money worries, the average American needs to carefully weigh their options.
While an emergency fund is good insurance against financial turmoil, it’s not always an option. Just 44 percent of Americans have enough money to cover a $1,000 emergency expense, while just 47 percent have more rainy-day savings than credit card debt. And yet, successive crises can quickly wipe out your savings. While taking out a personal loan or taking on credit card debt can pay the bills now, the fees and interest rates can be major obstacles.
In the meantime, homeowners with equity in their home have another option. By redeeming ownership of your home with equity loans, equity loans, and shareholding agreements like Unlock, you can avoid paying high interest rates when tough financial times knock at the door.
How home ownership can be an option for unexpected expenses
Home equity is the portion of the home you own with a mortgage; Essentially, it’s the difference between your home’s value and the amount you owe. The more you’ve paid off your mortgage and the higher the market value of your home, the more equity you’ll have. There are several ways to redeem your home value.
A cash-out refinance is a type of debt restructuring that allows you to replace your current mortgage with a larger loan in exchange for cash taken from equity. Another option — the traditional home equity loan — allows homeowners to borrow a lump sum of money against their equity, which is paid off later. On the other hand, a home equity line of credit (HELOC) offers flexibility in how much money you can withdraw. One thing to note is that home equity loans and HELOCs come with separate repayment terms and interest rates from your original mortgage.
A fourth option is the conclusion of a participation agreement. Equity sharing companies will buy up a portion of the home’s equity in exchange for a larger portion of the equity in the future. Homeowners either buy their share after an agreed period of time or pay a percentage of what they later sell the home for.
Home equity deals can be attractive to homeowners who are looking for alternative ways to get equity out of their home but may not be able to afford increased or additional monthly payments. Also, the process can be comparatively quicker and have lower credit requirements while avoiding high interest rates.
What should be considered when disbursing equity
While home equity can be a financial cushion, treating your home as a piggy bank for utilities is not a good idea. Withdrawing your equity is not instantaneous and comes with fees, requirements and other factors to consider.
Most equity loans, HELOCs, refinances, and division requirements require you to have over 20 percent equity in your home, while some require 20 percent equity remaining after payout. These options have income requirements and minimum credit scores.
Additionally, a payout refinance replaces your previous monthly payment and term and starts afresh, while home equity loans and HELOCs require a separate payment each month on top of your primary mortgage payment. These options increase the total amount you pay on your mortgage each month. Other options like refinancing, home equity loans, and shareholding agreements give you a lump sum of cash. HELOCs, on the other hand, are flexible in how much money you withdraw.
Finally, refinances, home equity loans, and HELOCs can take a few weeks to be approved. Since these are essentially loan applications, you won’t be able to access your money immediately. All forms of stock payouts also come with closing fees.
Comparisons of access to equity
|capital requirement||20 percent equity||15 to 20 percent equity||15 to 20 percent equity||20 percent equity|
|Minimum. credit requirement||Varies – typically 620||Mid 600s||Mid 600s||500|
|Maximum Loan Amount||80 percent of equity||80 percent of equity||80 percent of equity||10 percent of the total home value|
|approval time||45 to 60 days with 3 days waiting time||14 to 42 days||30 to 60 days||10 to 30 days|
|payout||lump sum||lump sum||line of credit||lump sum|
|interest rate||Fixed or variable||Firmly||variable||none|
|Refund Policy||One-time monthly payment over 15 to 30 years||Additional monthly payment over 5 to 30 years||Variable monthly co-payment over 20 years||No monthly payments; The owner pays back the agreed percentage of the house value|
|fees||3 percent to 5 percent of the loan||2 percent to 5 percent of the total loan||2 percent to 5 percent of the total loan||3 percent of total loan, other closing costs|
Why Access Home Equity Through Sharing Arrangements?
Equity sharing arrangements can be a viable option for homeowners who need quick access to cash with fewer requirements. While equity ownership has its downsides, here are some reasons why this option might be right for you.
Home equity shares often have lower requirements than a refinance, home equity loan, or HELOC. If your credit score has dropped due to bill stacks, or if you don’t meet the income requirements for traditional equity payout methods, a home stock can still free up your money while you recover.
Home equity can get money into your hands faster. While there is still a processing time for application approval and home inspection, stocks can offer faster payouts than traditional stock access methods – sometimes in as little as 10 days – with no waiting times.
No monthly payments
One of the biggest benefits of a stock ownership agreement is no monthly payment. Refinances, equity loans, and HELOCs can drain your wallet with increased or additional monthly payments. However, home shares only require one payment when the home is sold or at the end of the division agreement, giving you a chance to bounce back before you pay.
Avoid rising interest rates
You don’t have to pay interest on a stock when it comes time to sell your home or buy back the stock. This means your payment will remain the same even if interest rates rise.
How Unlock turns equity into cash fast
Unlock is an equity investment company that allows you to access your equity quickly and effectively, with fewer requirements and no monthly payments.
Unlock works by buying a future share of your home’s equity in exchange for instant cash. When the stock starts, you can access anywhere from $30,000 to $500,000 up to a certain home equity threshold, depending on the value of your home. In return, Unlock gets a bigger chunk of your equity at the end of the contract or house sale — so if you sell 10 percent of your total equity at the beginning, Unlock gets 16 percent at the end of the term.
Homeowners have flexibility in repaying Unlock. You can sell your house and unlock the share amount from the selling price. You can also buy back the shares before the end of the contract, either in partial amounts or in one lump sum.
Unlock can offer a more flexible route to financial freedom when you’re in a tight spot. If an unexpected medical bill has drained your emergency fund and hurt your credit score, a payout through Unlock means you can pay your bills and not worry about qualifying for refinance, paying high interest on a personal loan, or paying increased payments juggle .
If your home increases in value due to renovations, you can still collect the difference when you sell it.
Freeing up cash now can also pave a better path for your future. If you’ve lost your job, the money from your equity doesn’t just have to pay the bills — you can also use it to advance your education and secure yourself a better-paying career.
With these benefits in mind, see if Unlock is for you. If you have at least 20 percent equity in your home and a credit score of 500 or more, then it may be worth checking out to qualify.
The final result
A financial emergency can add a lot of stress to your life, but it’s not the end of the world. Your home ownership can give you extra protection if things go wrong – but remember that it shouldn’t replace insurance or an emergency fund when it comes to preparing for a financial emergency.
Whether it’s a new baby, a car accident, or paying off your credit card debt before interest rates go up, Unlock offers you a quick and easy way to access your home equity and free you from financial anxiety in the future.