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How It Works

EquityChoice, a new type of residential second mortgage that gives your customers the freedom to do more with their housing wealth without monthly payments, ever!

What does Shared Appreciation mean for my client?

  • If the customer’s home value goes up, they owe a portion of their home’s appreciation
  • If their home value goes down, they only owe principal + interest
  • The most the customer can owe in fixed interest & shared appreciation is capped (varies by state)

At maturity, the customer owes a Final Balloon Payment (Principal + Fixed Interest + Shared Appreciation Amount)

Because it’s a mortgage, it has more safeguards for your customers than equity sharing program!

  • The amounts owed as interest and shared appreciation are both capped, preserving equity even if the home appreciates significantly.
  • Regulated loan product with standard docs and disclosures, licensed originators, and an easy application process.
  • May have special tax benefits for investors & small business owners (consult a tax advisor).

Mortgages designed with your clients in mind.

EquityChoice is a new type of residential second mortgage that gives your customers access to their home equity with more choices than traditional home loans and lower costs than equity sharing agreements. With EquityChoice, your clients can:

  • access from $85,000-$500,000 in cash upfront (up to 16% of their home’s value)
  • lock in a low fixed rate of approximately 4.5% (compounds monthly)
  • preserve cash flow for reinvestment as they don’t have to make monthly payments

Below Market Fixed Interest Rate

In exchange for a “below market” interest rate and no monthly payments, the homeowner agrees to pay a share of the “future appreciation” of their home (as variable interest) when the loan matures. They owe a share in their home’s appreciation if the value of the home goes up. If the home value goes down, they only owe principal and fixed interest of 4.5% that compounds monthly (a windfall in a down housing market).

  • They can expect to owe a share of future gain in their home value that is equal to 3 times their original LTV%. 
  • The amounts they owe as interest and shared appreciation are both capped.

Proceeds

The choice is entirely up to your client; however, we do suggest thinking of long-term strategies that can assist in diversifying their investments, building wealth with the time advantage of immediate funds available, and increasing monthly cash flow. Common use cases include:

  • buying a second home or rental property
  • reinvesting in assets with high-yield potential
  • adding monthly cash flow 
  • making home improvements or renovating to age in place
  • starting or funding an existing business 
  • investing in or paying off educational expenses
  • funding long-term expenses and/or retirement needs

End of Term

When the loan matures, your client will have various options for paying back the outstanding loan balance such as:

  • using funds from savings, income from real estate properties, or other investment accounts
  • refinancing with a traditional mortgage or home equity loan
  • using part of the proceeds from selling the home

Product Comparison Chart

Since your customers have many options when it comes to home financing, it’s important to see how EquityChoice stacks up against other traditional products.  Here’s a quick breakdown of the most common features compared with other financing alternatives:

*The fixed interest rate will accrue on a monthly basis and negatively amortize, which will result in an increase to your principal balance.

How Much Money Can My Customers Get?

  • Customers can choose how much money to receive and how much future home appreciation to share at maturity
  • They can borrow from 3% to 16% of their home’s appraised value (subject to $85,000 minimum loan amount)
  • At maturity, they would owe 3x EquityChoice LTV in future home appreciation + interest (4.5% compounds monthly).

For example, if they have home value of $1M, they can borrower from $90,000 (9% LTV) to $160,000 (16% LTV). They would owe from 27% to 48% of their home’s future appreciation depending on how much they borrowed

(plus fixed interest of approximately 4.5% on unpaid balance)

Choosing to receive less money now will result in a lower cost of Shared Appreciation.

Indexed Shared Appreciation = (Indexed Value – Initial Agreed Value) *
(Home Appreciation Interest Share)

the result of that is then multiplied by the following:

(Outstanding Balance/Original Principal Balance)

How do you determine the future appreciation or change in value of the home?

When your client applies for EquityChoice, we use an independent 3rd party appraiser to estimate the value of the home (referred to as Appraised Value). To account for market volatility and naturally occurring appraisal variance, the Appraised Value will be reduced by generally 5% to establish the home’s Initial Agreed Value which will be used as the starting point for calculating the future appreciation.

In order to determine the amount of appreciation your client will owe at time of payment (partial prepayment or a Maturity Event), we look to the Index to calculate what we refer to as Indexed Shared Appreciation.

Specifically, to calculate the Indexed Shared Appreciation we will:

  • refer to the current Index value published for your Note Date at time of payment, which is the Initial Index
  • compare the Initial Index to the most recently published Index value prior to payment date. This determines the Index Change Percentage
  • multiply the Index Change Percentage by the Appraised Value, the result of which when added to the Appraised Value, is the Indexed Value of your home
  • subtract the Appraised Value from the Indexed Value, then multiply that by your HAIS. That result is finally multiplied by the outstanding principal balance at the time of payment divided by the original principal balance to reach the Indexed Shared Appreciation amount.

Our EquityChoice Program is an easy process to increase your earning potential in as little as 2 weeks!

  • Identify potential clients & submit registration form
  • Newfi manages the entire process from application to funding
  • Broker Partner receives flat fee per funded loan

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