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Using Equity Key to Finance Long Term Senior Care
| Definition |
Qualifications |
Costs |
| Pros & Cons |
Benefit Types & Limits |
How to Apply |
| Overview of Equity Key | ||
EquityKey is a contract that allows senior homeowners in good health with home values greater than $350,000 to receive a cash advance in exchange for a percentage of their home’s future appreciation.
When the senior or their family sells the home, EquityKey has the first right to purchase the home at the fair market value. They charge an “acquisition” fee of up to 8% of the home value at the time which they equate to what it would cost the senior to sell their home by using a traditional real estate broker.
Typically, a senior receives 10-15% of their home’s value in exchange for a 50% stake in the home’s future value. A home value at $500,000 would provide the senior an immediate $75,000. If they sell the home in 10 years and it has appreciated to $600,000, then EquityKey receives $50,000 (for 50% of the appreciation) and up to $48,000 for fees for a total of $98,000. These numbers are for illustration purposes; they are near but not the actual terms.
EquityKey uses the average of 2-3 appraisals to determine the home’s market value both when entering the contract and again when purchasing the home. The senior determines how much cash they want and the company determines what percent of the change in value of the home they have to give up to receive the cash. If agreed upon, the senior receives an immediate payment. Seniors do not make monthly or interest payments and there are no restrictions on how the proceeds can be used.
It is expected the agreement last for the lifetime of the homeowner but they can sell the home anytime after 10 years without early termination charges. Home owners are required to maintain the home in good condition and have property insurance. They can re-finance existing mortgages provided the loan value is less than 70% of the home’s value.
It is important to note that EquityKey purchases and pays for a life insurance policy on the homeowner. In the case of a death, EquityKey collects the insurance benefits. By doing this, they protect themselves against a loss should the homeowner pass away before the home has had the opportunity to appreciate.
Marketed as an alternative to reverse mortgages, EquityKey can provide resources to help pay for long term care for seniors who own their homes. That said, it is not always the best option and there are limitations.
From an eligibility perspective, there are 2 major differences between an EquityKey agreement and a reverse mortgage. With EquityKey, the senior is not required to live in the home and EquityKey requires borrowers to be in good health and pass a health screening. Therefore:
- Single seniors or couples that both require assisted living or skilled nursing will not pass the health screen; therefore this is not an option for those individuals.
- A single senior in good health may consider this an option but probably does not need immediate funds for long term care. They might however, consider using the proceeds to finance long term care insurance.
- Couples where one partner is in good health and one requires care might consider this option as well. The healthy senior meets the requirements and enters the contract and then uses the proceeds to help for the spouse’s care. Unless they do not live in the home, couples in this situation should also consider a reverse mortgage.
From a financial perspective, if a senior resides in an area that is expecting home prices to appreciate significantly, then the cost of an EquityKey agreement will be high as they are sharing the appreciation. The opposite is true as well. If their home value is expecting only modest growth, the cost of the EquityKey agreement is moderate. Given the declines in home value that many American experienced in recent years, an EquityKey agreement could be a very expensive source from homes appraised today if home prices rebound significantly over the next 5-10 years.
If the home deprecates in value, EquityKey might choose not to buy the home. In this case, seniors keep the money paid to them and the sale price of the home.
Be Aware That:
- Equity Key has the first right to purchase the property when the owner dies or chooses to sell the home.
- A life insurance policy is purchased on the home owner that is paid for and collected only by the company.
- One of the participants has to be in good health and pass a health screening. Up to 50% of otherwise qualified seniors fail for health reasons.
- Currently EquityKey is only available in 10 states.
- The proceeds from an Equity Key agreement may affect a senior’s Medicaid eligibility. One might consult with a Medicaid eligibility expert prior to making the decision.
Equity Key is Also Known As:
-Home Equity Sharing Programs
-Real Estate Equity Exchange
-Home Equity Co-Share
-Home Equity Co-Investment
-Shared-Appreciation Arrangement
-Equity Release
-Non-Traditional Home Equity Programs
-Alternative Home Equity Programs
-Real Estate Equity Exchange
-Home Equity Co-Share
-Home Equity Co-Investment
-Shared-Appreciation Arrangement
-Equity Release
-Non-Traditional Home Equity Programs
-Alternative Home Equity Programs
Age Requirements
To engage with EquityKey, seniors must be between 65 – 84 years old.
Disabilities / Health Requirements
EquityKey requires elderly individuals to be in good health to enter the contract. A history of cancer, diabetes, long term smoking and/or many other things can disqualify the senior. Seniors are required to release 10 years of their medical records and 50% of otherwise qualified seniors fail for health reasons.
Family Status
Marital or family status is not a factor in eligibility for the EquityKey agreement.
Financial Status Requirements
EquityKey does not have minimum income or credit score requirements. Depending on the state in which the senior resides, there are minimum home value requirements of between $350,000 and $500,000.
Veteran Status Requirements
Veteran status is not a factor in eligibility for EquityKey agreements.
Geographic Requirements
Currently EquityKey is offered in the following states.
Arizona
California
Connecticut
Florida
Massachusetts
Nevada
New Jersey
New York
Oregon
Washington
EquityKey intends to extend its coverage to the following states soon.
Illinois
Maryland
Virginia
Washington DC
Depending on the state in which the senior resides, there are minimum home value requirements of between $350,000 and $500,000.
Other Requirements
- Home Requirements – EquityKey does not require the home to be owner-occupied or the senior’s primary residence.
- Depending on the state in which the senior resides, there are minimum home value requirements of between $350,000 and $500,000.
- EquityKey allows there to be an existing mortgage on the home of up to 70% of the home’s value.
Types of Benefit Payout
EquityKey will provide payouts in a single lump sum or in annual or monthly installments.
Restrictions on How Payout Can be Used
There are no restrictions on how the proceeds from an EquityKey agreement can be used.
Benefits Amounts & Limits
If a single homeowner is engaged with EquityKey, the cash advance limit is 12%-15% of the home’s value. If two homeowners engage that limit is increased to 24%-30%.
Time to Receive Benefits
The application processing time for EquityKey is 90 – 120 days. This extended period is required to collect and evaluate the borrower’s medical history information.
This Source Can Help For
Any purpose the senior chooses including:
-In-home care
-Adult day care
-Assisted living / senior living
-Skilled nursing home care
-Alzheimer's / dementia care
-Adult day care
-Assisted living / senior living
-Skilled nursing home care
-Alzheimer's / dementia care
The costs associated with an EquityKey agreement should be considered at 3 levels. There is an application fee, there is the cost associated with giving up a percentage of the home’s appreciation and there is an “acquisition fee” when the home is sold.
Application Fee
There is a $300 application fee that is refundable if the senior does not qualify.
Home Appreciation Cost
It is difficult for seniors to truly access the home appreciation costs associated with EquityKey because they cannot predict the future value of their home. Therefore, they cannot predict how much will be due to EquityKey.
The table below shows the model with sample data that EquityKey uses to calculate their share. Note that the EquityKey percentage can vary.
Home value when entered into agreement | $500,000 |
Home value when sold | $600,000 |
Home appreciation during agreement | $100,000 |
Appreciation percent shared with EquityKey | 50% |
Appreciation amount due to EquityKey | $50,000 |
Acquisition Fee
EquityKey has the right to purchase the home when the owner passes away or chooses to sell. The price is determined by the average of 2-3 appraisals minus 8%.
EquityKey has the right to purchase the home when the owner passes away or chooses to sell. The price is determined by the average of 2-3 appraisals minus 8%.
Continuing with the sample data from above, this table shows the final amount the home owner will receive at the sale of the home.
Home value when sold | $600,000 |
EquityKey Acquisition Fee Percentage | 8% |
EquityKey Acquisition Fee Amount | $48,000 |
Amount EquityKey pays for the home | $552,000 |
Appreciation amount due to EquityKey (from above) | $50,000 |
Amount of home sale price received by home owner | $502,000 |
Early Termination Fee
If the home owner chooses to sell the home within 10 years of entering the agreement, EquityKey charges an unpublished early termination fee. The actual amount will be included in the final agreement and while it is unknown it is fair to assume the penalty is fairly heavy.
If the home owner chooses to sell the home within 10 years of entering the agreement, EquityKey charges an unpublished early termination fee. The actual amount will be included in the final agreement and while it is unknown it is fair to assume the penalty is fairly heavy.
Note that EquityKey previously had a 10% “disposition” fee that has been replaced with their 8% “acquisition fee”.
EquityKey offers a pre-qualification form on their website. If an individual passes the screen, an EquityKey representative will contact them. Click Here to Visit Equity Key’s Website.
