When homeowners think about “tapping equity” or accessing their home value, their mind typically goes to cash-out refinancing. This has been the number one option for Americans looking to access cash for years. However, it does not come without its restrictions and downsides for many homeowners.

What Is a Cash-Out Refinance?

A cash-out refinance is essentially a new mortgage that replaces your current home loan at a balance that’s higher than your outstanding one. It lets you access the equity you’ve built up in your home by cashing out the difference between the two mortgages. You can use the money toward home renovations, consolidating debt, and more.

What Are the Pros of a Cash-Out Refinance?

A cash-out refinance can be a solid solution for many homeowners looking to access cash. Here are a few benefits of refinancing:

1. Lower interest rates: When you refinance your mortgage, you will typically get a lower interest rate than with any other option. 
2. Fund home renovations: When you use a home refinance option to make substantial, value-increasing home repairs, you can deduct your mortgage interest from your taxes.
3. Consolidate debt: When you use the money from a cash-out refinance to pay off high-interest credit card debt, you could potentially save thousands of dollars in interest.
4. Boost credit score: When you pay off your credit cards in full with a cash-out refinance, this can increase your credit score by reducing your credit utilization ratio.

While refinancing can be a valid solution for many, it has become an unattainable option for many people with a less than stellar credit score, non-traditional income, or a higher debt-to-income ratio. 

What Is Ribbon?

Ribbon is an alternative financial solution for homeowners looking to access their home equity. Instead of a loan, Ribbon offers customers something called a sale-leaseback. This solution, as it sounds, is when a customer sells their house to Ribbon, but continues to stay as a renter. The customer is able to convert their equity into cash from the sale, and receive a lease, giving them time and money to figure out their next steps.

Ribbon offers several different types of sale-leaseback solutions depending on your end goal. You can have the option to repurchase your home eventually or sell the home on the open market and move, collecting any appreciation. 

What are the Pros of Ribbon?

Many homeowners are opting-out of the traditional path in favor of pursuing Ribbon’s sale-leaseback solutions. But what are the benefits of choosing this alternative over a cash-out refinance?

1. Fewer restrictions: Ribbon works for more homeowners than traditional financial solutions. We look beyond credit score, debt-to-income ratio, and income type. Instead, we create a solution that works for you and your unique circumstances. 
2. Consolidate debt and work to boost credit score: Like a refinance you can pay off your credit cards in full with Ribbon, this can drastically reduce monthly payments and increase your credit score by reducing your credit utilization ratio.
3. Benefits of a home sale without having to move: the home-sale process can be a tiring and confusing one. You feel pressure to move out quickly and to accept a lower offer than you wanted. With Ribbon, you sell us your house, ridding yourself of a mortgage. But instead of moving out, you get to stay as a renter while figuring out your next steps. 
4. No banks or loans: When you think of traditional financial solutions, you think of banks, lenders, rejections, and frustration. But Ribbon is not a loan. We convert your equity to cash to use how you want. No need to repay and with some solutions, you can repurchase your house back.

What are the Cons of a Cash-Out Refinance?

Before deciding to pursue a cash-out refinance, it’s important to be aware of all the ramifications that come along with it. Here are a few of the downsides to refinancing:

1. Risk foreclosure: When you use your home as collateral, you are risking losing it if you find yourself unable to make the payments. It’s vital that you don’t take out more cash than you need. Make sure that you’re using it for something that will improve your financial situation instead of worsening it.
2. Higher interest rates: While the idea behind refinancing is to improve your financial situation and get a lower rate, there is a chance that it will raise your rate. Make sure you are aware of your rate and fees before agreeing to any terms.
3. Private mortgage insurance: Some lenders will let you borrow up to 90 percent of your home’s equity, but might require you to pay Private Mortgage Insurance until you’re back below the 80 percent equity threshold, adding to your overall costs.
4. Overusing home equity: When it comes to tapping your home’s equity, it should only be reserved for funding important goals that will help your finances in the long term. Tapping equity too often or for purchases that are considered nonessential can show a lack of discipline with your finances.

What are the Cons of Ribbon?

No longer own your home: Ribbon prides itself on being an alternative to a loan. We remove the hassles of banks and lenders by purchasing your house outright and giving you the proceeds in cash. This means that you go from owning your home to being a renter of it. You no longer have to pay a mortgage, but will have to pay monthly rent and renter’s insurance. While you can stay in your house for an extended, or even indefinite amount of time, you will no longer have equity.

What Option Is Best For Me?

Many homeowners opt for traditional solutions to their financial needs. A refinance is a common choice, but lenders have gotten far more restrictive in recent years. Cash-out refinances have become especially harder to get if you find yourself with a low credit score, a nontraditional income type, or a high debt-to-income ratio. If you do fall in this category, or just prefer to avoid the hassle of lenders, Ribbon provides a painless way to convert your hard-earned equity into cash. Maybe you want to reduce your monthly expenses and increase your cash flow, or you need money to reach a different goal. Ribbon can be an option for you. 

Instead of paying for application fees and hard credit pulls to qualify for a refinance, Ribbon provides a free estimate. You also maintain the option to repurchase your home with a traditional mortgage or have Ribbon sell it on the open market and move when you’re ready, while you collect any appreciation. 

Key Takeaways

Ribbon helps a wide range of homeowners reach their goals. Whether you’re looking to find your next dream home but need the time and money to secure it, looking to pay down debt, fund a new business venture, or something else, Ribbon can help you get there without the unfair restrictions of a lender. Talk to a financial advisor today to find out if Ribbon might be a good option for you.