1. Your situation
- Home value about $750,000; still owed $300,000
- Wants $100,000; expects to stay 5 to 10 years
- Credit score in the 700 to 719 range
2. The offer, in plain English
- Provider A pays $100,000 today. When you settle, you owe 1.8 times your share of the home's value then (1.65 times if you settle in the first 5 years).
- Your share: $100,000 ÷ $750,000 = 13.3% of the home, so you'd owe about 24% of the home's future value.
- A cost cap limits what you owe to 18.5% a year on the $100,000.
- You must settle within 10 years, by selling, refinancing, or buying out the agreement.
- Cash you actually receive: about $94,000, after a $4,500 provider fee and about $1,500 of third-party costs.
3. What you'd repay
| If your home grows | Settle at 3 years | 5 years | 10 years |
|---|---|---|---|
| 0% a year | $165,000 | $165,000 | $180,000 |
| 4% a year | $173,458 | $200,748 | $266,444 |
| 6% a year | $173,458 | $220,807 | $322,353 |
At 4% growth, settling at 10 years costs $172,444 on top of the $94,000 you received: about 11.0% a year. Settling in the first 3 years costs about 22.7% a year, because the cost cap is reached quickly.
4. Red flags we'd point out
- The 10-year deadline. At 4% growth you'd owe about $266,000 in year 10. You need a plan to sell or refinance by then, at whatever rates exist in 2036.
- Early settlement is expensive. If there's a chance you sell within 3 years, this costs over 20% a year.
- The starting value. Check how the provider sets your home's value. A lower appraisal than you expect raises your share.
- Upkeep and insurance duties. Read what the contract requires you to maintain, and what happens if you fall behind.
5. How it compares
A HELOC at about 7.1% a year would cost about $592 a month in interest: about $71,000 over 10 years, compared with about $172,444 for this offer at 4% growth. If you qualify and can afford the payment, the HELOC costs far less. If you can't, compare this offer with the other providers that fit your home; see them all on HEI Calculator.
6. Questions to ask Provider A before you sign
- How will you set my home's starting value, and can I see the appraisal?
- What exactly do I owe if I settle in year 2, 5, or 10?
- Can I buy out the agreement early without selling, and how is the price set?
- What happens if my home loses value?
- What would make me in default?
Our bottom line
If you can qualify for and afford a HELOC payment, take the HELOC. If you can't, this offer is in line with the market, but don't sign until the starting value is clear and you have a plan for year 10.