Accessing Home Equity without a Loan Brigham City UT
Park City, UT
Salt Lake City, UT
Salt Lake City, UT
St George, UT
Garden City, UT
Traditionally, homeowners have converted their home equity into cash through debt-financing instruments such as home equity loans and reverse mortgages. But a new tool structured by the Real Estate and Equity Exchange and Company (REX & Co.), called the REX Agreement, enables homeowners to unlock a portion of their home equity without charging them monthly payments or interest; instead, REX & Co. acquires the option to share in a specified percentage of the future increase or decrease in the home’s value.
Although homeowners can usually receive up to 10 to 15 percent of their home’s value up front, it is important to separate the concept of a REX Agreement from that of a loan.
“A loan is secured by the property and the lender is essentially guaranteed the return of the principal and the guaranteed rate of return in the form of an interest rate or interest charges,” Jeff Cusack, managing director of Rex & Co., said. “[Whereas] we have...no guarantee of the amount that we advance, and we have no guarantee of a rate of return. I think the interesting way to look at it…would be that this is equity-financing as opposed to debt-financing.”
Homeowners decide the percentage of the future home value shared with Rex & Co. In order to execute a REX Agreement, homeowners must first determine the percentage of the future change in home value that they are willing to share with Rex & Co., which correlates directly with how much money they will be able to receive up front. Homeowners can elect to share up to 50 percent of the future change in their home’s value with REX & Co.
Next, homeowners and REX & Co. agree to the value of the home based on various valuation tools, including a neutral third party appraisal. REX & Co.’s option exercise price is thereby determined based on the home’s value multiplied by the percentage share being purchased. The homeowner then receives an advance payment in cash immediately upon entering into the REX Agreement, which is typically 10 to 15 percent of the home’s value.
At the end of the REX Agreement, homeowners will receive the remaining payment, or the option exercise price minus the advance payment, and Rex & Co. will receive their share in the gain or loss on the home value. A REX Agreement may last for up to 50 years in most places (40 years in Illinois and 30 years in North Carolina), but generally ends when the homeowners decide to sell their home.
For example, REX & Co. would be able to acquire a 35 percent share of a home valued at $1 million for an option exercise price of $350,000. In this case, the homeowners would typically receive an advance payment of $100,000, which can be used without any restrictions. The homeowners would receive the remaining payment of $250,000 at the end of the REX Agreement.
There are three possible outcomes at the end of the REX Agreement: the home value has apprec...