Home Equity Agreements
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June 28th, 2025 at 1:56:53 PM
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Does anyone have one of these or have looked into them? These are not Home Equity Loans, which are mostly a second mortgage.
With a HEA, you get a lump sum of money, make no monthly payments, and owe a lump sum at the end of the agreement- either when you sell your house or after a set number of years.
Suppose you have a home worth $500,000 and have $100,000 equity in it. With an equity loan, you could take out about $65,000 but you have monthly payments until the loan is paid back.
With a HEA, you could borrow $50,000 and have no monthly payments. In ten years, you sell the house for $800,000 and would owe the original $50,000 and 10% equity of $80,000, so you pay $130,000 and walk away with a check for $670,000. You pay more in the end, but you had a $50,000 loan for ten years, so it all depends on how you used it.
There very well might be some pipebombs in these that I'm missing, but I think I looked at these very critically. I'm adverse to almost all forms of long-term debt, as well as most short-term debt. With these loans, you are partnering up with the banks
There aren't many banks offering these yet, and terms vary widely, as do fees and upfront cost. You can expect to lose about 5% of your loan to upfront fees. Because of reduced risk, banks accept lower credit scores on these "loans"
With a HEA, you get a lump sum of money, make no monthly payments, and owe a lump sum at the end of the agreement- either when you sell your house or after a set number of years.
Suppose you have a home worth $500,000 and have $100,000 equity in it. With an equity loan, you could take out about $65,000 but you have monthly payments until the loan is paid back.
With a HEA, you could borrow $50,000 and have no monthly payments. In ten years, you sell the house for $800,000 and would owe the original $50,000 and 10% equity of $80,000, so you pay $130,000 and walk away with a check for $670,000. You pay more in the end, but you had a $50,000 loan for ten years, so it all depends on how you used it.
There very well might be some pipebombs in these that I'm missing, but I think I looked at these very critically. I'm adverse to almost all forms of long-term debt, as well as most short-term debt. With these loans, you are partnering up with the banks
There aren't many banks offering these yet, and terms vary widely, as do fees and upfront cost. You can expect to lose about 5% of your loan to upfront fees. Because of reduced risk, banks accept lower credit scores on these "loans"
The older I get, the better I recall things that never happened
June 28th, 2025 at 2:38:37 PM
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How does this differ from a "reverse mortgage"?
May the cards fall in your favor.
June 28th, 2025 at 3:48:43 PM
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Quote: DieterHow does this differ from a "reverse mortgage"?
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Reverse mortgages are only available to a certain class of people, and have set terms. You get monthly income or a lump sum and you know the payoff number. With a HEA, the more your house appreciates, the more it cost you.
Also, reverse mortgages now come with limits on what you can use the money for.
I can see these being useful in certain circumstances, but I can also see a lot of people pissing away futurre wealth for instant gradification.
The "Why struggle with a monthly car payment when I can sign now and pay later " mentality. Borrow $50,000 for a nice car that ends up costing $150,000 down the road.
The problem is that Americans have too much wealth tied up in the equity of their houses, and banks need access to it.
The older I get, the better I recall things that never happened
June 28th, 2025 at 8:04:35 PM
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Quote: billryanQuote: DieterHow does this differ from a "reverse mortgage"?
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Reverse mortgages are only available to a certain class of people, and have set terms. You get monthly income or a lump sum and you know the payoff number. With a HEA, the more your house appreciates, the more it cost you.
Also, reverse mortgages now come with limits on what you can use the money for.
I can see these being useful in certain circumstances, but I can also see a lot of people pissing away futurre wealth for instant gradification.
The "Why struggle with a monthly car payment when I can sign now and pay later " mentality. Borrow $50,000 for a nice car that ends up costing $150,000 down the road.
The problem is that Americans have too much wealth tied up in the equity of their houses, and banks need access to it.
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Sounds like a bad deal. I owe MORE if my house appreciates? No thank you. And I am completely okay with banks having absolutely no access or right to my home equity or appreciation over time.
June 29th, 2025 at 2:34:52 AM
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It sounds like it amounts to a Home Equity Loan with a balloon payment. It seems to be a little like a zero coupon bond without the sinking fund.
The kind of thing sophisticated borrowers could use but will be a depth charge for the lender if real estate prices do not keep up.
The kind of thing sophisticated borrowers could use but will be a depth charge for the lender if real estate prices do not keep up.
All animals are equal, but some are more equal than others
June 29th, 2025 at 3:43:50 AM
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Quote: AZDuffmanIt sounds like it amounts to a Home Equity Loan with a balloon payment. It seems to be a little like a zero-coupon bond without the sinking fund.
The kind of thing sophisticated borrowers could use but will be a depth charge for the lender if real estate prices do not keep up.
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They are designed so that bankers can tap into your equity. I doubt that much concern was given to the overall effect on individual homeowners.
The older I get, the better I recall things that never happened
