Mortgage Killer Accelerator

Strategy 8 of 107

Sell a share of the home's future value (home equity investment)

Depends on markets or variable ratesFrom selling a share of the home's future value

What it is

A home equity investment company pays a lump sum now for a share of the home's future value or appreciation. There are no monthly payments.

Steps

  1. A home equity investment company pays a lump sum now for a share of the home's future value or appreciation. There are no monthly payments.
  2. Apply the lump sum to principal.
  3. Settle at sale, refinance or the end of the term (often 10 to 30 years), when the company takes its share.

Repeat: Usually once per home; some allow a buy-out and a new agreement later.

Measure: Lump sum received against the share owed at settlement under rising, flat and falling home values.

Try it in the calculator Enter its amount in "One-time amount to principal". Add a payoff goal of 5 years to see what is still needed.

Risks

  • If the home rises in value, the share can cost far more than a loan would.
  • The CFPB found consumers surprised by the size of the repayment.
  • Fees at closing.

Who it fits

Higher net worth, with assets, Married couples, Grandmas and grandpas (62 and over), Average household

Needs

Any homeowner with a mortgage.

How predictable

Depends on markets or variable rates

A worked example (hypothetical, not guaranteed)

Picture a hypothetical household (higher net worth, with assets). They owe $300,000 at 6.5% with 30 years left. The required payment is $1,896 a month, and that payment, which comes from income, never changes in this example.

They follow the steps: a home equity investment company pays a lump sum now for a share of the home's future value or appreciation. There are no monthly payments.

Suppose it brings a one-time $30,000 on principal. The loan would be paid off in 22 years 10 months instead of 30 years, saving about $134,798 in interest. To finish in five years, they would still need about $3,387 a month more from other strategies. That is why the five-year sequences stack several at once.

The amount above is chosen only to show the arithmetic. It is not an estimate of what this strategy will produce for anyone. Put real numbers from the fact finder into the calculator.

Sequences that use it

  • Asset-rich cycle: Move an asset into principal and recast. Only borrow against an asset when its cost and risk are clearly lower than the mortgage's.

Sources and more information

Where to get help

Related strategies

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