I own my house free and clear: no mortgage, no liens, etc. Is it possible to get a cash advance against its equity? I don’t mean a loan. I mean, like, I sell a portion of interest in the house - say, $50k - and then the bank puts a lien on it for when it’s eventually sold, they keep the amount of the advance plus some interest, Bob’s your uncle.
Failing that, would owning the home free and clear mean I could get a better interest rate on a HELOC to put towards a car purchase, or would I be better off with a conventional auto loan?
You are describing one of the forms of a reverse mortgage. Not all of them are terrible deals, but many are, so shop carefully.
Note that you need to be of a certain age (62+) to qualify.
With the fees involved, I wouldn’t think $50k is enough to make it worthwhile, but products change and I haven’t looked at this for ten years (when my parents considered it).
You can get a HELOC (home equity line of credit). You might get checks or a credit card, and you can draw on it. As I recall, there’s a period where the equity is available, then it closes and you have your repayment period.
I guess it doesn’t allow you the option you are looking for in terms of repayment : delaying it until you sell. But it would give you access to the money you seek.
ETA: re-reading the OP, I see you already mentioned a HELOC, so I probably didn’t add any new information. My apologies.
It probably doesn’t hurt to see what rate the bank gives you on a home equity line versus a car loan. I don’t see why they couldn’t give you a comparison.
Just for clarity, the major difference between a reverse mortgage and any kind of HELOC is that a HELOC falls under the terms of a conventional loan and requires repayments on a monthly basis. A reverse mortgage is a unique kind of financial product that doesn’t. But it still accrues interest. The pitfall can be that interest compounding eventually becomes a killer – all depending on the amount you take out, and how long you keep it before you sell.
Reverse mortgages tend to be heavily disparaged by financial advisors, but they’re not necessarily a bad deal if you understand the pitfalls and are dealing with a reputable institution – for instance, not one that is going to arbitrarily decide to evict you on some flimsy pretext, or that charges extortionate interest or closing fees. My take is that anyone going that route should set a definite timeline for how long they’re going to hold it, because it’s the compounding over time that kills you. I think it was Einstein who said something to the effect that the most powerful force in the universe is compound interest.
I don’t think the OP is describing a reverse mortgage. It sound like one of those deals where a person buys X% of your equity for $Y. So for the $50,000 the investor owns (for example) 30% of the equity. Later if the house sells for a $500,000 profit, the investor gets $150,000.
Honestly, I think you’re trying to describe a mortgage without using the word “mortgage”.
If you sell a part-share in your house to the bank for 50k, the bank don’t have an outstanding loan of 50k due to be repaid with interest; they have a part-share in your house. If your house is worth, say, 250k they have a 20% share. When the house is sold, they’ll be entitled to 20% of the sale proceeds. The legal step they need to take to protect their interest in the house is not the registration of a lien, bu tthe registration of their ownership of share in the property, acquired by purchase from you.
If the deal you actually want is that the bank lends you 50k and at a later point gets 50k plus accummulated interest, with the loan secured by a right of recourse to the sale proceeds of the house, that’s pretty much the defintion of a mortgage.
The only unusual feature is that the bank doesn’t have the right to foreclose; they have to wait until you sell the house before they can recover their loan plus interest. I think a bank legally could enter into that deal, but I can’t see why they would; the inability to call in the loan carries unusual risk for them. I think at the very least there would have to be a fixed term after which you must sell the house, and/or some events on which the loan becomes repayable even if you haven’t sold the house.
HELOC rates are around 9% right now, and car rates are as low as 5%.
Also, as far as I know, HELOC rates are variable. At least mine was. It was around 7% when I got it in 2021 and went up as high as 12.49% or something! It’s back down to 8% now. A car rate is going to be fixed.