Equity Key is looking to compete with reverse mortgages by offering people 65 years and older a way to receive cash for the future appreciation of their homes. REX released a product earlier this year that is a lot like the Equity Key product but there are a few differences between the products.
The REX product is available to anyone who can legally sign a contract and Equity Key requires at least one of the homeowners to be at least 65 years old. The biggest difference between the REX and Equity Key products, is that Equity Key purchases a life insurance policy on behalf of the homeowner they advance money to. According to the website “The policy mitigates risk and, more importantly, provides Equity Key with the necessary liquidity to purchase the home upon a clients passing. Equity Key will open, own and pay the premiums on a life insurance policy on Participant. To qualify, prospective participants are subject to approval by a life insurance carrier.”
Another difference between the two products is that Equity Key has the right to purchase the property from the borrower when they pass away or decide to move out of the house. If the house appreciates, decreases, or stays the same Equity Key still has the right to purchase the house for market value minus their disposition costs. The disposition costs are 10% of the property value when the borrower enters into the agreement.
The homeowners have the choice of receiving their payout in a lump sum or monthly payment. The payments are based primarily on the current value of the home, the Participation Rate, and how well the client(s) can qualify for life insurance. For each participant, the lump sum option is between 12%-15% of the home value (24%-30% if both participate) and the monthly payment option is between 0.9%-2.4% of the home value per annum (1.8%-4.8% if both participate). Unlike a reverse mortgage, the borrowers can move out or rent your home at any time; the agreement remains in place and you continue to receive monthly payments (if selected) as long as you hold title.
While Equity Key is an interesting alternative to a reverse mortgage, I still think a reverse mortgage is a much safer option for everyone involved. Feel free to check out the website below to see more details on the product.