What is a home equity agreement?

A home equity agreement allows borrowers to access a part of their home equity without having to make monthly payments. 

With a home equity agreement, homeowners get a lump-sum amount based on their home equity without having to pay it back. Essentially, homeowners sell a share of their home’s future value. 

It is important to know that not all lenders, including Rate, offer home equity agreements. Those looking to tap into their home equity with Rate should consider a cash-out refinance, home equity loan or HELOC. 

Start tapping into your home equity today with a cash-out refinance, home equity loan or HELOC application. 

Homeowners who choose to get a home equity agreement will receive a lump-sum amount based on their home’s current value. 

Typically, home equity agreements will last 10 to 30 years. At the end of your term, you will have to repay your agreement, which will be based on your home’s current value. This value could be significantly higher than your original loan amount if your home has appreciated in value. 

During a home equity agreement, the homeowner is still responsible for paying for maintenance, property taxes and insurance as well as any monthly payments on other loans or mortgages they may have. Depending on your agreement, you may be required to stay in the property for the entirety of the agreement term and might have restrictions on home renovations, improvements or sale of your property. 

You will have to repay your agreement at the end of your home equity agreement term or when you decide to refinance or sell. 

Similar to any other loan, home equity agreements come with their own benefits and drawbacks.  

• Access to funds without monthly payments
• Funds can be used for a number of expenses
• No interest payments
• Requirements for things like credit scores tend to be less strict

• Borrowers relinquish a portion of their home’s value, which could end up being a significant amount
• Cannot access as much money as with other loan options that tap into home equity
• Upfront fees may be as high as 5% of your loan amount and appraisal costs
• Some states have specific rules for home equity agreements and not all lenders offer them
• Depending on the home equity agreement, borrowers may not be able to alter, sell or refinance their home

While home equity agreements have their benefits, they are not for everyone and not offered by all lenders. Let’s take a look at a few alternatives that let you tap into your home equity. 

A HELOC, or home equity line of credit, allows borrowers to access a line of credit based on the difference between their home’s current value and remaining mortgage balance, known as home equity. 

During the first part of a HELOC, borrowers can access their line of credit while only needing to pay back interest on the funds they use. After this part, borrowers will need to pay back their principal loan as well as interest on that amount without the option to make additional draws. 

The funds from your HELOC can be used for any costs that you may have. The option to take additional draws make HELOCs a great option for any expenses where you aren’t sure exactly how much you will need, like home improvements. 

A home equity loan gives you a lump-sum amount based on your home equity. The funds you receive from a home equity loan can be used as you see fit. Home equity loans are a great option when you need a large amount of funds upfront. Borrowers will have to start paying back these loans shortly after receiving their funds. 

A cash-out refinance replaces your current mortgage with a new, larger mortgage, giving you the difference in a lump-sum. Unlike a HELOC or home equity loan, which work as second mortgages, a cash-out refinance will be your only home loan. 

If your home has increased in value, a cash-out refinance will give you a sum based on your new home value. This amount will be used to pay off your current mortgage, if you have one, and give you the remaining funds. 

With a cash-out refinance, you will get new terms with your mortgage, which can include a longer loan length and new rate.  

For those looking to get a lump-sum based on their home’s value without needing to make monthly payments, a home equity agreement might be right for them. 

If you think your home’s value could significantly rise in the next few years or you do not want to have any restrictions on what you can do with your property, a home equity agreement might not be right for you. 

After looking at a home equity agreement, if you decide it isn’t right for you, other options allow you to tap into your home equity. Borrowers can tap into their home equity through a cash-out refinance, home equity loan or HELOC. 

Tap into your home equity today when starting a cash-out refinance, home equity loan or HELOC application. 

_{Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Refinancing your mortgage may increase costs over the term of your loan. Restrictions may apply.} 

_{All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. Rate does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error-free. Some information in the publication may have been provided by third parties and has not necessarily been verified by Rate. Rate its affiliates and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action.}