Equity Release Loans - Shared Appreciation Mortgages

Has anyone ever heard of an "Equity Release" option? Supposedly it has something to do with taking a cash payment in exchange the for future appreciation of your home. Anyone know anything about this?

1 Answer

Here's the scoop on equity release loans (also called shared appreciation mortgages):

This new mortgage product lets borrowers pledge future equity in exchange for an equity loan today. It works this way: The lender / investor delivers a lump sum–usually 10 to 15% of the current value of your home, and when you sell it, the firm gets half of your property’s appreciation.

Some require that you pay back the initial advancement while others do not. All investors require that you keep the property maintained and pay your taxes, and you can’t sell it for a minimum number of years (usually 5) without paying a hefty penalty. Additionally, you cannot take on more home equity debt or refinance without approval. The good thing is that if your home doesn’t increase in value you are not penalized and in some cases won’t even have to pay the loan back!

So, if you need money desperately and have no equity, this loan could save your life. ****Otherwise, it might be a really, really expensive way to borrow--for example, if your property appreciates at just under 5% a year and you keep the loan ten years, you end up paying about a 13% rate for your money. But that's IF the property appreciates.