EquityKey is back and offering a new way for qualifying homeowners to receive 8%-16% of their property’s value in exchange for a share of the future appreciation of the property.
Often referred to as an alternative to a reverse mortgage, EquityKey started to gain some traction right as the markets collapsed but was forced to suspended new deals in November of 2008 after KBC Financial Products (former owner) cut off funding. In March of 2009, the company’s founders were able to purchase the company back from KBC and began looking for additional funding to bring the product back to the market.
The new EquityKey Home option is similar to the old offering but no longer requires homeowners to pass a physical in order to qualify for the insurance aspect of the product. Previously, EquityKey took out an insurance policy on the borrower when the agreement is signed to help protect the downside of the transaction.
With the new EquityKey Home option, the company determines the appreciation of the home not by the future sales price but by using the S&P/Case-Shiller Home Price Index that covers the area where your property is located.
“We use the Index as an objective tool to measure your home’s appreciation,” says the company. “The Index is managed and controlled by Standard & Poor’s, the world’s foremost provider of independent credit ratings, indices, risk evaluation, investment research and data. We have no control over the Index or its performance.”
At the start of an EquityKey Home Option, the home is appraised and an initial value is established. EquityKey pays between 8% and 16% of a home’s value to purchase between 50% and 100% of the home’s potential appreciation. As an example, for a home with a value of $500,000, EquityKey would pay between $40,000 and $80,000.
At the end of the transaction, if the Index has increased, the amount of the increase is used to establish the appreciation. EquityKey then receives its percentage of the appreciation as determined in the original agreement. If the Index is the same or lower at the end of our transaction, there has been no appreciation and, consequently, EquityKey is not entitled to any payment (assuming you have not breached the agreement or ended it early).
The product was often referred to as an alternative to a reverse mortgage because it can provide more flexibility than the HECMand homeowners aren’t taking on any new debt. In addition, only one owner listed on title must be between the age of 55 and 85 and the option can be used on your primary residence, secondary residence, residential investment or vacation properties said the company.
The costs are also lower than the HECM, the only fee is a $300 application deposit which is reimbursed if the transaction funds or they are not able to qualify. However, the HECM program will typically provide much more money to the borrower, so there are trade offs to consider.
Currently, the program is only available in certain parts of California. Other areas like Portland, Chicago, Seattle, Denver, New York, and more are expected to be added later this year. To see how much you can qualify for, check out their calculator here.