Home Equity Conversion

A New Way to Tap into Your Home Equity for Retirement Expenses

When retirees are looking to tap into their home equity, they have traditionally turned to Reverse Mortgages, Downsizing or Mortgage Refinancing. And, these methods of getting cash out of home equity have been extremely successful in helping people live more comfortably in retirement.

Due to the success of this trend, new home equity products are emerging. One innovative solution is called Home Equity Conversion.

Home Equity Conversion is an agreement between a Real Estate Investment Company and a homeowner. With Home Equity Conversion, the homeowner receives immediately available cash by selling the Real Estate Investment Company a percentage of their house’s future change in value. In other words, the homeowner gets cash now in exchange for sharing an agreed upon percentage of the home's future appreciation. And, if the home decreases in value, some Real Estate Investment Companies will even share in the loss.

Home Equity Conversions are not loans, lines of credit or debt of any kind. As such, no interest is ever paid. Most importantly, the homeowner retains all equity you have earned to date – only future change in value is shared with the Real Estate Investment Company.

Example

Different Real Estate Investment companies offer slightly different kinds of terms for a Home Equity Conversion Agreement. However, the following example is fairly typical for the amount of money you’ll receive up front and what you would have to return at the end of the agreement.

Let’s say that you purchased your home 10 years ago for $450,000 and it is currently appraised at $600,000. You could do a Home Equity Conversion Agreement and be paid $100,000 in cash now. In exchange, you will be giving up approximately 50 percent of the future change in value of your home. Then, let’s say that you choose to sell your home 10 years later. Here are different scenarios for the equity sharing and payback for Home Equity Conversions:

• If your home is valued at $720,000 in 10 years, then the proceeds to the Real Estate Investment Company would be $160,000 at the time of the sale -- $100,000 to return the original payment and share half of the $120,000 increase in your home’s value.
• If in 10 years, the value of your home is still $600,000, then you would only need to return $100,000 to the the Real Estate Investment Company.
• If your house’s value decreases by $120,000 to $480,000, then that loss is shared with the Real Estate Investment Company and you would only be required to return $40,000 (The original $100,000 minus $60,000 share of the loss of value.)
  
  IMPORTANT NOTE: Some Real Estate Investment Companies have created products specifically for seniors that do NOT require repayment of the original payment – this type of product is only available in California and New York – though other states, including Florida and Arizona are coming soon. It is important for you to compare your options for products. Continue here if you are interested in a Home Equity Conversion product and we will connect you directly to the leading providers.

Summary of Home Equity Conversion

Home Equity Conversions allow you to convert your home equity into immediate cash in exchange for a share in the future change of the value of your home. Unlike Reverse Mortgages and Home Equity Loans, the homeowner is not burdened with interest charges and monthly payments. And, if the value of your home decreases, some Real Estate Investment companies will even share in the loss with you as well. Another important note is that some companies require that you return the original sum you received when you sell the home, others do not.

The unprecedented increase in home values over the past 10 years and uncertainty about rising interest rates may make Home Equity Conversion a particularly attractive solution right now.

Choose a link below to learn more about Home Equity Conversion, or visit All Home Equity Solutions to compare Home Equity Conversion with other ways of converting your home equity into cash.