Does Equity Key’s Product Make More Sense Than A Reverse Mortgage?

usn_logo US News & World Report journalist Emily Brandon writes about San Diego, CA based Equity Key’s product which can be used as an alternative to a reverse mortgage.  Equity Key’s product will provide a cash advance on a house in exchange for the right to share in the homes future appreciation.  A typical borrower is able to receive 10-15% of their homes value in exchange for a 50% stake in the home’s future value.  So while the homeowner might receive more money by using a reverse mortgage, Equity Key’s product doesn’t increase the borrowers mortgage balance.

The program is a lot like the REX agreement which I’ve covered before but it differs because seniors are required to pass a physical in order to be eligible for the product.  The company uses an insurance policy which is taken out on the borrower when the agreement is signed.

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As an example, Equity Key cofounder Jeff Nash gives an example using a house worth $1 million.  Equity Key pays property owner between $100-150K in cash to partner in the growth of the property.  If the homes value grows to $3 million in 20 years, $1 million of the appreciation will go to Equity Key and the other $1 million to the owner.  If the home owner passes away within 10 years of signing the agreement, Equity Key uses a life insurance policy it purchased on the homeowner to buy the home for $2 million.  (The company can then sell the house for $3 million.) Should the heirs desire to keep it, Equity Key offers the right of first refusal to the family, Nash says. But they essentially would have to buy the $1 million share of the house Equity Key owns.

The article provides more information on what to look at to see if the Equity Key product it the right choice for homeowners.  The Equity Key product is available for properties in Arizona, California, Connecticut, Florida, Massachusetts, New Jersey, New York, Oregon, and, for commercial properties only, Texas.  The company plans to add more states soon.  To read a copy of the article click the link below.

Tapping the Future Value of Your Home

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  • The Equity Product is very interesting. The biggest problem I have with it the large penalties that you pay if you sell the home in the first ten years. Teh rex product seem sliek a much beter deal, but it is more restrictive as to credit scores, only Primary SFR’s, etc.
    I have yet found no sceanrio where it made sense for a potential Reverse Mortgage borrower to take either of these alternatives.

  • I agree with Michael’s comments and would add that for the vast majority of senior homeowners, having their remaining mortgage paid off is the primary goal. Quite often with the equity sharing agreements, the money received is not enough to eliminate their existing mortgage. More realistically for those living in a $600K home, the $80-90K they would get is insufficient.

  • There is no ‘one size fits all’ product for Seniors who are seeking liquidity in today’s marketplace. For some the reverse mortgage will continue to be a viable solution.

    However, for an increasing number of clients the EquityKey and Rex programs offer unparalelled flexibility. For clients who do not have sufficient equity in their homes to obtain a reverse mortgage, or for those in the Jumbo category who cannot obtain one these days, the EquityKey and Rex programs allow a client to unlock some additional capital. While this capital may not wipe out their mortgage payment, it could be used to either drastically reduce the payment or be invested in fixed income securities that will bolster a senior’s cash-flow.

    In addition, the EquityKey program is available on most kinds of real estate, ranging from primary residences to investment and 2nd homes as well as raw land and commercial properties. This flexibility allows EquityKey to be a solution for clients seeking liquidity above and beyond anything that they can get from just obtaining a reverse mortgage on their primary residence.

    It is important in this environment that a service provider such as our firm has the flexibility to listen to a client’s needs and offer the right set of solutions rather than simply focusing on how we can sell a product. These new programs have their place and fill a need in the marketplace.

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