EquityKey and Shared Risk

In the past we have looked at the Rex reverse mortgage program, a kind of equity sharing arrangement — see our posts from July 9th and July 18th.

Another example of an equity-sharing reverse mortgage comes from EquityKey. The basic arrangement is that you get cash from EquityKey and they get a 50 percent interest in any future property appreciation.

The program, open to those aged 65 and above, “gives you the opportunity to receive debt-free cash without risking any of the existing equity in your home,” according to the company. “Your payments are based on the projected future appreciation of your home and you never have to pay back any of the money that you receive, so long as you keep up your end of the bargain. In exchange for cash today, EquityKey obtains the right to participate in the future appreciation of your home. EquityKey is not a debt and will never touch your existing equity.*”

What about the asterisk? That leads to a note which says “any purchase price paid by EquityKey for your home will be less a fixed disposition cost which is equal to 10% of the initial appraised value of your home; other fees may apply. There can be no guarantee that participation in the EquityKey program is suitable for you. Please consult your own legal counsel, financial advisor, tax planner and any heirs to your estate before making a decision to participate in the EquityKey program.”

What’s interesting with this shared-appreciation reverse mortgage is that you essentially lock in your current equity — less that fixed disposition cost.

Conceptually, I like the idea of lenders sharing risk. As EquityKey points out, if the value of the property declines “you keep the money. EquityKey believes that real estate is a safe long-term investment. If your home loses value then EquityKey will lose the money that it has paid to you. The amount you receive from EquityKey is not a loan and doesn’t create debt; therefore, EquityKey faces the risk of loss if your home does not grow in value.”

Check out the EquityKey web site for more information. As always with any reverse mortgage product, check all the details and costs, and be sure to get independent advice from an attorney who specializes in elder law before signing any paperwork.

This entry was posted on Thursday, September 13th, 2007 at 4:54 pm and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.