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.
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.