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Using Rex Agreements to Finance Long Term Senior Care
| Definition |
Qualifications |
Costs |
| Pros & Cons |
Benefit Types & Limits |
How to Apply |
| Overview of Rex Agreements | ||
Beginning in Oct 2008, due to the instability in the housing and financial markets, the lender Rex & Co. has temporarily suspended applications for REX Agreements. We continue to include this information so those seeking long term care resources are aware of the option and its suspension.
Rex and Co. is also in the process of re-naming itself to "EquityRock".
Rex and Co. is also in the process of re-naming itself to "EquityRock".
A Rex Agreement (also known as EquityRock) is a contract that allows a homeowner to convert their home equity into cash. It gives the senior a lump sum of cash upfront in exchange for repayment of the cash when they sell the home and a percentage of the home’s appreciation since the date of the contract.
For example, a senior with a home valued at $500,000 could borrow $75,000 (15%) upfront in exchange for 50% of the appreciation. So if they sell their home in 10 years for $600,000, the home will have appreciated by $100,000 and they owe 50% of that or $50,000 to the lender. In addition, the senior re-pays the original 75,000 loan amount. The total repayment is $125,000 ($75K + $50K). These numbers are for illustration purposes; they are near but not the actual terms.
The process is as follows. The company and the senior agree on the home’s value using a neutral 3rd party appraisal. Then 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 it. 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.
The term of the agreement is usually 50 years but much more likely it becomes due when the user sells their home. Home sales before 5 years have extensive early termination fees. Should the homeowner want to end the agreement after 5 years but not sell the home, they can have a re-appraisal of the property and pay off Rex & Co share of the appreciation.
Similar to a reverse mortgage, seniors are required to live in their home during the term of the Rex Agreement. In addition there are significant early termination fees for agreements terminated before 5 years. Therefore a Rex Agreement is a potential option as a source of funds for long term care only for seniors where at least one of the spouses has no intention of moving for at least 5 years. Meaning should a single senior or both spouses of a couple require assisted living or skilled nursing in the near future, Rex Agreements are not a good option.
From a financial perspective, if a senior resides in an area that is expecting home prices to appreciate significantly, then the cost of a Rex Agreement will be high as they are sharing the appreciation. The opposite is true as well. If the home value is expecting only modest growth, the cost of the Rex Agreement is moderate. If a home depreciates over the course of an agreement, Rex & Co takes a loss and the borrower essentially receives a free loan.
Given the declines in home value that many American experienced in 2008, a Rex Agreement could be a very expensive source if home prices rebound significantly over the next 5-10 years.
As with reverse mortgages, fears that the lender can force the senior to sell the home are largely unfounded. REX & Co. does not go on title and is not a co-owner. Home owners are required to live in and maintain the home in good condition and to stay current on their mortgage, insurance and tax payments. If an issue does occur, the seniors can always terminate the Rex Agreement and keep the home, although they will have to pay early termination fees.
Homeowners can make home improvements, such as making a home more accessible for seniors, without Rex & Co unfairly benefiting from those improvements. There is a process that subtracts the costs of the improvement from the appreciation when the home is sold.
Be Aware That:
-Significant penalties exist if the home owner sells the home within 5 yrs of signing the agreement. Therefore a senior in poor health that might need to move out of their home during that period might not be a good candidate for a Rex Agreement.
-Currently Rex Agreements are only available in 15 states.
-Some seniors have found that the appraised value of their home was well below their expectations and declined to proceed. As a result, they had to pay $300-500 for the appraisal.
-The proceeds from a Rex Agreement may affect a senior’s Medicaid eligibility. One should consult with a Medicaid eligibility expert prior to making the decision.
Rex Agreements are Also Known As:
-EquityRock Agreement
-Home Equity Sharing Programs
-Real Estate Equity Exchange
-Rex & Co.
-Home Equity Co-Share
-Home Equity Co-Investment
-Shared-Appreciation Arrangement
-Equity Release
-Non-Traditional Home Equity Programs
-Alternative Home Equity Programs
-Home Equity Sharing Programs
-Real Estate Equity Exchange
-Rex & Co.
-Home Equity Co-Share
-Home Equity Co-Investment
-Shared-Appreciation Arrangement
-Equity Release
-Non-Traditional Home Equity Programs
-Alternative Home Equity Programs
Age Requirements
There are no minimum or maximum age requirements to qualify for a Rex Agreement.
Disabilities / Health Requirements
Disability or health status is not considered as a qualification for a Rex Agreement. Note that because seniors must live in the home and there are early termination fees for agreements ended in less than 5 years, seniors whose health may require them to move from the home in that time might not be good candidates for Rex Agreements.
Family Status
Marital or family status is not a factor in eligibility for Rex Agreements.
Financial Status Requirements
Seniors are required to have a good credit score to qualify for a Rex Agreement. It is estimated that a score of 680 or higher is sufficient. utstanding mortgages cannot exceed 75% of the home’s values.
Veteran Status Requirements
Veteran status is not a factor in eligibility for Rex Agreements.
Geographic Requirements
Currently, individuals must reside in one the following states to qualify for a Rex Agreement.
California Maryland Oregon Colorado Massachusetts Pennsylvania Connecticut New Hampshire Virginia Florida New Jersey Washington Illinois New York
Other Requirements
Home Requirements – To qualify for a Rex Agreement, a senior must own and reside in a single-family, detached, home.
Types of Benefit Payout
Rex Agreement benefits are paid out in a lump sum at the time of entering the agreement.
Restrictions on How Payout Can be Used
There are no restrictions on how the proceeds from a Rex Agreement can be used.
Benefits Amounts & Limits
Most seniors that enter into a Rex Agreement receive between 10% and 15% of their home’s value in cash. This amount varies with the percent of the home’s future appreciation they are willing to share. The maximum limit is set at 50%.
Time to Receive Benefits
Seniors receive the cash from a Rex Agreement when they enter into it. However they should expect 4-6 weeks of planning to understand the legality and get the 3rd party home appraisal.
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 a Rex Agreement should be considered at two levels. First, there are the closing costs and second there is the cost associated with giving up a percentage of the home’s appreciation.
The exact closing costs associated with a Rex Agreement are unclear. In some cases, Rex & Co appears to cover the costs and in other cases fees as high as 3% of the cash advances have been reported. In either case, a one-time fee from $500 - $5000 can be expected.
It is difficult for seniors to truly access the home appreciation costs associated with a Rex Agreement because they cannot predict the future value of their home. Therefore, they cannot predict how much will be due to Rex & Co.
The table below shows the model with sample data that Rex & Co uses to calculate their share. Note that the Rex & Co percentage can vary.
Home value when entered into agreement | $500,000 |
Home value when sold | $600,000 |
Home appreciation during agreement | $100,000 |
Percentage of appreciation shared with Rex & Co. | 25% |
Home sale price share to home owner | $575,000 |
Home sales price share to Rex & Co | $25,000 |
Year 1 – 25%
Year 2 – 20%
Year 3 – 15%
Year 4 – 10%
Year 5 – 5 %
After 5 years – no early termination fee
Year 2 – 20%
Year 3 – 15%
Year 4 – 10%
Year 5 – 5 %
After 5 years – no early termination fee
As of Oct 2008, due to the instability in the housing and financial markets the lender, Rex & Co. is temporarily not accepting applications for REX Agreements. We continue to include this option so those seeking long term care resources are aware of the option when it becomes available again.
Interested individuals can request materials from Rex & Co.’s website.
