{"id":6272,"date":"2025-01-23T07:55:51","date_gmt":"2025-01-23T12:55:51","guid":{"rendered":"https:\/\/www.deeds.com\/articles\/?p=6272"},"modified":"2025-01-23T07:55:54","modified_gmt":"2025-01-23T12:55:54","slug":"heard-about-home-equity-sharing-does-it-beat-a-heloc-or-home-equity-loan","status":"publish","type":"post","link":"https:\/\/www.deeds.com\/articles\/heard-about-home-equity-sharing-does-it-beat-a-heloc-or-home-equity-loan\/","title":{"rendered":"Heard About Home Equity Sharing? Does It Beat a HELOC or Home Equity Loan?"},"content":{"rendered":"\n
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What if you could get a lump sum of cash today, leveraging your home\u2019s potential appreciation value?<\/p>\n\n\n\n

You could.<\/p>\n\n\n\n

With home equity sharing, a deed holder gets a lump-sum cash advance. The lender takes a share of the property\u2019s appreciation. Also called a home equity investment (HEI), it\u2019s an alternative to a home equity loan or line of credit<\/a>.<\/p>\n\n\n\n

Because homes are generally expected to rise in value in coming years, most deed holders have a good deal of future equity \u2014 as well as the value they currently hold. So, access to an HEI is a tool in the long-time deed holder\u2019s toolbox. But is it worth picking up? Here, we discuss the good, bad, and ugly in these home equity sharing deals.<\/p>\n\n\n\n\n\n\n\n

The Good<\/h2>\n\n\n\n
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\u201cI’ll gladly pay you Tuesday for a hamburger today.\u201d<\/em><\/p>\nJ. Wellington Wimpy<\/cite><\/blockquote>\n\n\n\n

Say you can\u2019t get approved for a home equity loan or a cash-out refinance. Maybe it\u2019s because of a low credit rating, unemployment, or not enough income. You might still be able to get an HEI.<\/p>\n\n\n\n

The application is relatively quick and easy. The company will need to review the title. It will also order an appraisal. When that work is done, the company will wire the lump sum to you, usually in just days.<\/p>\n\n\n\n

In addition to the relative speed of the process, what\u2019s a plus here? No monthly payments! You\u2019ll owe nothing until the payment is due, years from now, as a balloon payment. Or until you opt to settle your agreement with the company. Or you sell your home.<\/p>\n\n\n\n

If your home\u2019s value rises, you\u2019ll need to pay the company more at the end of the 10-, 20-, or 30-year term. If your home value sinks, you\u2019ll owe the company less, right? With some companies, yes. But not all.<\/p>\n\n\n\n

The Bad<\/h2>\n\n\n\n
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\u201cPaybacks are hell.\u201d<\/p>\nConventional Wisdom<\/cite><\/blockquote>\n\n\n\n

If paybacks are financial hell, balloon payments are the hottest ring.<\/p>\n\n\n\n

When the HEI reaches the end of its term, you must repay money you borrowed (principal), plus a significant percentage of the rise in property value. All at once. Because you have no crystal ball (or fancy AI like the lenders have), you won\u2019t know the loan\u2019s full cost until the end.<\/p>\n\n\n\n

Oh, and note the origination fee. It can be as high as 5% of the amount of cash you pull out.<\/p>\n\n\n\n

And another thing. Fees. The lender will deduct the costs of an appraisal and inspection, escrow services, tax, recording fees, and title insurance from your lump sum. Anticipate payoff and reconveyance servicing fees, too.<\/p>\n\n\n\n

Perhaps the biggest pitfall of all is that you sell some of your equity away to receive cash today. And with that balloon payment looming, you\u2019ll almost certainly have to borrow against that equity one day.<\/p>\n\n\n\n

The Ugly<\/h2>\n\n\n\n

Now, for some of the hardest pills to swallow for HEI customers:<\/p>\n\n\n\n