It’s a widespread belief in American life: it’s hard to become a homeowner, but once you’re in the door, you’re home free, with few of the financial challenges that often plague renters.
Not so fast.
Yes, homeownership often represents much more stable living expenses than renting – but in an age of rising insurance costs and property taxes, that tradeoff isn’t so clear-cut anymore. And many Americans would agree that the price of everything else, from eggs to medical bills, just seems to grow by the week.
That includes home prices. Home values are up roughly 50% in five years, leaving households with $35 trillion in equity. Of that amount, homeowners who have a mortgage have $11 trillion in “tappable equity” – money that can be borrowed against while leaving a 20% equity buffer in the home – as of the start of 2025, according to the ICE Mortgage Monitor.
Anyone who knows the feeling of being house-rich but cash-poor probably also knows the uncertainty of navigating the options that bridge those two realities.
There has long been a plethora of financial products available for homeowners, from home equity loans to reverse mortgages, said Noelle Melton, vice president of national homeownership programs and lending at the national nonprofit NeighborWorks America.
But it’s critical that homeowners understand the financial products that exist, their pros and cons, and how or if they fit into their own individual financial plan, Melton added.
“People don’t often view themselves as having assets,” she said. “They’re focused on figuring out how to put pieces together to make ends meet. But everyone can benefit from having an unbiased guide to advise them on the bigger picture of how this impacts their long-term financial health.”
Bank products for tapping home equity
The most familiar ways to convert equity to cash are loan products, offered by banks and other lenders.
Home equity loans give you a lump sum payment – usually with a fixed interest rate, but not always – that must be paid back over a period of years. Home equity lines of credit set out a certain maximum amount you can borrow, pay back, and then borrow again. HELOCs typically have floating interest rates.
Cash-out refinances allow you to take out a new mortgage that’s more than what you currently owe, then pocket the difference as cash. Reverse mortgages, which are available only to homeowners over 62, act in the opposite way a traditional mortgage does: the lender pays the homeowner a certain amount either every month or as a one-time lump sum.
In order to be approved for any of those products, a borrower needs a strong credit profile, and the willingness and ability to assume more debt. They have other drawbacks, as well: reverse mortgages carry extensive fees, and there’s always concern that a homeowner may outlive the cash provided by the product and be left with no equity to fall back on.
Similarly, home equity loans and lines of credit tend to have high interest rates: in the mid-8% range as of mid-May, according to Bankrate. Cash-out refinance rates are a little better: they’re in the high-6% range as of this writing, but more than half of homeowners with a mortgage had a rate below 4% as of the end of 2024. Taking on a new mortgage at a much higher rate may be a difficult proposition for many.
Home equity-sharing agreements
For all those reasons, debt products aren’t right for many homeowners. Jeff Glass founded Hometap, one of several companies that offer what are sometimes called “home equity investments” or “home equity sharing agreements” as a response.
“For many people, the idea of having to borrow more doesn’t work,” Glass told USA TODAY. “And the idea of having to sell all of it or nothing seemed too binary to us. So we created a third option, which is this idea of selling some of it.”
What that means in practice is that you offer a company like Hometap a stake in your home in exchange for upfront cash. When you sell the property or otherwise close out your agreement with the company, you pay back the cash you initially received, plus a percentage of the home’s appreciated value and some fees.
But home equity investments make many consumer advocates very uneasy.
Sharon Cornelissen, director of housing for the nonprofit Consumer Federation of America, says there is often a “mismatch” between how the products are marketed to consumers and what they wind up paying, which may not be clear until the end of the term.
Cornelissen points to research from the Consumer Financial Protection Bureau which found that homeowners who use equity sharing agreements tend to pay interest rates nearing 20%.
“They’re offering solutions for consumers who may not have other options,” Cornelissen said. “I would not endorse the products.”
Glass agrees. “Most of the time, a loan will turn out in retrospect to be less expensive,” he said. “So if someone has the incremental cash flow to be able to support that loan and isn’t going to be stressed out about it or having to make meaningful compromises in their life that affect the quality of their life, then I would say for those folks doing a HELOC or some kind of cash out refinance often will make a lot of sense.”
But the number-one reason most homeowners go to Hometap, Glass said, is to pay off debt or bills and repair credit – hardly the kind of borrower who’s likely to easily obtain a loan from a bank. Other types of homeowners may also seem like iffier borrowers, including small-business owners, retirees, or freelancers with erratic incomes, meaning they may not have the luxury of the cheaper products.
How to choose the best home equity product for you
With all of the options available, one of the best ways to know which one is right for you is to ask for unbiased third-party help. A financial adviser may be able to assist you: even if you don’t normally work with one, you can find “advice only” professionals who may charge by the hour or by the project to help you assess your choices.
Housing and Urban Development-approved counselors, like the ones at NeighborWorks America, are another option. Counselors may be better known for their assistance in helping more marginal borrowers become homeowners, but Melton says they are available throughout the homeowning cycle, no matter what kinds of questions an owner may have. Consultations are usually free or available for a nominal fee.
If you have the flexibility and credit profile and think products like a home equity loan or line of credit are right for you, make sure you understand the terms. Remember that entering into a new mortgage, via a cash-out refinance, may mean starting to pay down principal all over again. If you’re opting for a home equity loan or line of credit, make sure you know whether the interest rate is adjustable – which means it might go up just as easily as down – or fixed.
On the other hand, if you’re considering entering into a home equity sharing agreement or investment with a company like Hometap, Unlock, or Point, don’t feel rushed into anything. If you’re working with a financial adviser or counselor, ask them to review any paperwork you have from the company.
The CFPB also notes that some customers discovered unexpected problems in refinancing their existing mortgages if they had entered into a home equity investment, so keep that possibility in mind.
Finally, Cornelissen urges anyone who has a bad experience with a home equity sharing company to report it promptly to the CFPB and to state regulatory agencies like the attorney general. That will enable authorities to understand and regulate the industry better – something Glass says he and his counterparts welcome.
