Frequently Asked Questions
EquityChoice is a smart alternative to traditional home equity loans or coinvestments that allows homeowners access to the wealth locked in their home, especially for those who have recently refinanced at historically low mortgage rates. EquityChoice is a second mortgage that allows customers to keep their current primary mortgage terms intact and preserve the equity they’ve already built. We share in the outcome of the home price appreciation that occurs after you close on your Equity Choice loan, not before. It gives borrowers the choice of receiving cash from their equity at a below market interest rate plus sharing in a portion of the home’s future appreciation without having to liquidate portfolio investments, dip into savings, or experiencing the pressure of adding additional monthly mortgage payments. Like other mortgages, you are still required to pay property taxes, homeowner’s insurance, and maintain the home.
EquityChoice provides homeowners immediate access of up to 16% of their current home’s equity in cash – with loans up to $500,000 – in exchange for a fixed monthly interest rate that compounds monthly for the term of the loan plus a share in the home’s future appreciation. The shared appreciation may increase the effective annual percentage rate and overall cost of your loan.
This is dependent on how much you choose to borrow at the time you apply for the loan. The more you borrow, the more you share. Our Shared Appreciation amount is generally calculated as the loan-to-value ratio multiplied by three. For example, if you receive 5% of your home’s value today, the shared appreciation percentage will be 15%. Choosing to receive less money now will result in a lower share:
5% LTV – 15% Home Appreciation Interest Share
10% LTV – 30% Home Appreciation Interest Share
15% LTV – 45% Home Appreciation Interest Share
Unlike other products that may operate without required limits or usury cap, EquityChoice as a mortgage product defines the maximum you can owe in fixed interest and your Shared Appreciation amount based on a maximum amount that is calculated using a rate that is just below the state/federal highcost interest rate or annual percentage rate thresholds, as applicable in your state which can help preserve your hard-earned equity.
It’s simple. Our investment is longterm, on behalf of retirement plans and life insurance policy holders who don’t need or want access to their capital in the interim. We prefer that our money remains invested as long as possible. We offer EquityChoice to allow select customers, who are financially sound and responsible homeowners, access to capital without a fixed payment schedule.
While this is not meant to be a prequalification, at a minimum you must:
- be a homeowner with an existing first lien mortgage
- reside in the property as your primary residence for at least 2 years
- have sufficient equity, approximately 50% or greater, built in your home
- access to liquid reserves, assets, or income to satisfy the loan requirements
- have a FICO credit score of 680+ While the above is not a commitment to lend and is subject to change, it provides the minimum eligibility criteria when you are ready to apply for an EquityChoice loan.
Allowable sources include, but are not limited to, checking and savings accounts, retirement accounts (401k, IRAs, etc.), and non-liquid/ cash holdings (stocks, bonds, mutual funds). In addition, some business assets may also be considered.
The loan matures and must be repaid when you sell your home, after the specified term (10, 15 or 20 years), whichever happens first or upon the occurrence of certain other events as defined in your promissory note. When the loan matures, you are required to make a final payment representing the total amount owed under the mortgage.
Yes. This is one of the many benefits of EquityChoice. You are in control of your equity and proceeds, which also includes paying down your loan at any time, without a pre-payment penalty.
You can access up to 16% of your home’s value (LTV) assuming the balance of your primary mortgage and the EquityChoice loan do not exceed 60-65% of the home value (CLTV). The actual amount however depends on the current value of your home, your overall financial situation, and how much you would like to receive at loan origination. At the time of application, you can decide how much or how little you’d like to tap into within that range.
You can expect to pay an origination fee that is approximately 3% of the loan amount at closing and customary closing costs associated with a mortgage transaction. These costs can be financed into the loan. The out-of-pocket expenses you can expect to pay are for an appraisal and a property inspection, which are third-party fees and not lender costs.
Absolutely! You continue to live in the home that you love, using it as you see fit, so long as you remain the primary occupant. In addition, you keep all the tax advantages that come along with being a homeowner. Of course, just like any mortgage, you must continue to pay property taxes and insurance, and keep up with routine maintenance of the property. Also, like other mortgages, your home is security for your EquityChoice loan and we record a mortgage on your home.
You have the choice to use your loan proceeds however you want, with many EasyChoice customers leveraging these funds to diversify real estate or financial planning investments, start or invest in a business, replace high-cost lines of credit, renovate their home, fund college tuition, provide a down payment on another property, or consolidate high interest, unsecured debt.
Yes, you may still borrow the equity you have built in your home. When we close the EquityChoice loan, we will set a 1st lien debt limit that approximates the unpaid principal balance on your primary 1st lien mortgage. In the future, you can refinance your primary 1st lien mortgage as long as it doesn’t surpass the 1st lien debt limit. If you want to access proceeds greater than the 1st lien debt limit set, you can simply refinance and choose to pay off the EquityChoice loan.
Of course, you have the option to refinance your primary mortgage to reduce your interest rate. EquityChoice is a second mortgage, secured by a lien on your property that is subordinate to the primary (1st lien) on your home. As is typical with
any second mortgage, you will be required to pay a re-subordination fee to the servicer of your loan to keep your EquityChoice in place while simultaneously completing your rate refinance. Note that an EquityChoice loan may impact your
ability to refinance your first lien mortgage loan depending on the lender’s underwriting criteria.
EquityChoice offers you access to funds at a significantly below-market interest rate, 4-8% pts. less than current rates of comparable home equity products*, without forcing you to give up the historically low rate you secured on your current
first mortgage, for up to 20 years. Best of all, without required monthly payments you have extra money to put towards other needs you have for your funds.
*Average based on internal analysis of 2022 interest rates for home equity loans and home equity lines of credit.
As the only shared appreciation residential mortgage, EquityChoice provides homeowners greater safeguards and potentially lower costs than equity sharing agreements. Like all other mortgage products, it is regulated and can only be
originated by a licensed loan officer making it more predictable, secure, and controlled to protect all parties involved (the borrower, broker and lender).
As a mortgage, the state/federal high-cost interest rate or annual percentage rate thresholds set a maximum amount you owe, unlike other products that may present unknown risks as their balance accrues. EquityChoice also protects the homeowner in the event your home depreciates at time of maturity. If the home is worth less than the Initial Agreed Value at payoff, you will not owe us any interest based upon Shared Appreciation. In that event, you would owe the negatively amortizing fixed interest rate component that has been accruing for the term of the loan at a rate
that was set below the market of other second lien mortgage products at the time we closed your loan. If your home decreases in value, that presents a cost to us but not necessarily a loss to you.
For EquityChoice, the future appreciation in your home is calculated as the difference between your Appraised Value, sales contract or other source described below at loan maturity (Gross Sale Value) and the value of your home at loan closing (Initial Agreed Value), accounting for any Home Condition Adjustments multiplied by the Home Appreciation Interest Share.
Initial Agreed Value of your home is calculated by taking 95% of the Appraised Value, adjusted down to account for variance in market value at time of origination of the EquityChoice mortgage.
Gross Sale Value of your home is calculated by taking the value of your home at maturity based on one of the following sources, at the lender’s discretion: (1) A sales contract; (2) An appraisal; or (3) The amount of the insurance payoff, information
from tax records, comparable sales, or a recent appraisal that represents an accurate indication of the value, if your home has been damaged or destroyed so that an appraisal is not a viable alternative.
Home Appreciation Interest Share is the original Principal balance divided by the current Appraised Value multiplied by 3 (three). The Home Appreciation Interest Share is multiplied by the difference between the Gross Sales Value and the Initial Agreed Value after accounting for any Home Condition Adjustments.
In addition, the Gross Sale Value will be adjusted as necessary to take into
consideration any Home Condition Adjustments, which may be positive or negative, that affect the value of your home. The future appreciation we share in your home is calculated as the difference between your Gross Sale Value and the Initial Agreed Value. To determine the Shared Appreciation amount you will owe, we will take the following:
Shared Appreciation = (Gross Sale Value after accounting for Condition Adjustments, if any) – Initial Agreed Value, multiplied by Home Appreciation Interest Share
Always remember, the total interest based on the below market fixed rate for the term of the loan and the Shared Appreciation may never exceed the maximum amount that is calculated using a rate that is just below the state/federal high-cost interest rate or annual percentage rate thresholds, as applicable in your state at closing. The shared appreciation may increase the effective annual percentage rate and overall cost of your loan.
While you may use the loan proceeds from your EquityChoice mortgage to invest in a new property, you cannot use it as the 1st lien on a new home. This is because EquityChoice is a 2nd lien on your primary residence, and part of the requirements
includes owner occupancy. In other words, EquityChoice offers you the opportunity to refinance an existing property with a mortgage; but, it cannot be used as the primary mortgage for the down payment when purchasing a new home.
We understand that some homeowners may have no mortgage on their home whatsoever. We’re exploring additional new and innovative ways to ensure all your
home financing needs are met. Check EquityChoice.com to stay up to date with upcoming product releases.
Many customers use EquityChoice to remodel or renovate their homes. Some do this purely for aesthetics, while others use it to age in place. To receive credit for capital improvements, you will need to show proof of significant enhancements made to the value of your home at least 60 days prior to the loan maturing. Keep in mind that the cost of a home improvement project will not be calculated as 1:1 for the amount you paid and the value of your home. For example, if renovating your kitchen costs $50,000, it’s possible your home’s value may only increase by $40,000 today, and the overall long-term residual value of the improvements may be less. We subtract the residual value of your improvements from our appreciation calculation, but don’t worry. If we lent you the money to make improvements, then
increased the value of the home at the same time, we’d be double dipping. By subtracting the value of the improvements, we are decreasing the Shared Appreciation amount due at pay off.
EquityChoice mortgages require no payments until maturity. However, if you find yourself behind on your mortgage in 1st position, the lender may follow through with any proceedings, such as foreclosure, to settle your debt. The EquityChoice
lender will participate in those proceedings if you are seriously behind on payments. The same is true if you default on EquityChoice, including on making the payment due at its maturity.
A borrower who takes pride in homeownership, maintains their homes physical condition, intends to remain in their home for an extended period, and appreciates the freedom to use the loan proceeds to remodel their home, enhance their lifestyle, fund their small business, or use the loan proceeds to invest in income-producing rental properties, limited partnerships, or portfolios of listed equity securities.
While this is not meant to be a prequalification, at a minimum you must:
- new homeowner (purchased your primary residence less than 2 years ago)
- have less than 50% equity in your home
- own your home outright, with no 1st lien or current mortgage
- short-term real-estate investor (flipper)
- intend to sell or move within the next 5 years
- have a below 680 FICO Score
EquityChoice can be a smart alternative to high cost, small business lines of credit or debt factoring options. You may find it to be an attractive alternative to certain limited maturity SBA loans that require a personal guarantee which includes your home equity even though the proceeds fund your business. Plus, since you aren’t required to make any payments until maturity, EquityChoice can be used to significantly increase your monthly cash flow.
Since you don’t have to make monthly payments on EquityChoice until the end of the loan term, you may find that it’s to your economic advantage to reinvest the proceeds in income producing rental real estate or portfolio growth of dividend producing listed equity securities. Other investments where you turn time into an advantage – the time when you don’t owe principal or interest but receive investment income – might be appropriate as well.
How do I seek help in determining if EquityChoice is an appropriate alternative to my current small business financing arrangements or suitable for reinvestment in something other than my primary residence?
You should discuss the appropriateness of EquityChoice with your Financial Advisor, Business Consultant, and/or Tax Accountant. They can explain the steps you may need to take and how you might take advantage of the tax laws that allow you to recharacterize the 1098 interest deduction as current business or investment interest expense.
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