Using EquityKey to Finance Long Term Senior Care

As of June 2017, it has been confirmed that EquityKey has closed for business. They no longer maintain a website and the phone number does not work. This webpage is maintained strictly for historical purposes. 

Definition

EquityKey is a contract that allows homeowners with home values greater than $100,000 to receive cash in exchange for a percentage of their home’s future appreciation. With this finance option, eligible applicants do not pay monthly payments or interest. 

 

Sample Scenario

A senior homeowner receives a percentage of their home's value (between 6% - 17.25% of their home’s value) in exchange for a 50% (for example) stake in the home’s future value. A home valued at $500,000 could provide the senior an immediate $80,000 (16%).

If they sell the home in 10 years and it appreciated an average of 4% per year, the home would be worth approximately $700,000; it would have gained $200,000 in value. Fifty percent of the gain would go to EquityKey ($100,000) and the remaining $600,000 of the home's value would go to the homeowner, minus the original dollar amount received. These numbers are for illustration purposes; they are near, but not the actual terms.

 

Process

In order to determine the appreciation of a home over the duration of the agreement, EquityKey uses the Case-Shiller Home Price Index both to establish a baseline when the agreement begins, and to establish a value at the termination of the agreement. The Case-Shiller Index does not actually assign a value to the home; rather it acts as an objective, third party measure of the home's appreciation using aggregate home values for a specific geographic area.

A home appraisal is used to determine the home's actual value at the onset of the agreement. This value is used by EquityKey to determine what percentage of the home's future appreciation the homeowner must sell to EquityKey in order to receive the requested amount of cash. To clarify, EquityKey needs to know the home's value because the Case-Shiller Index will only indicate the appreciation as a percentage. The home's value is also used in determining the minimum length of the agreement.

Once the homeowner determines the amount of money they would like to receive (which can be between 6-17.25% of the home’s value), EquityKey will determine the percentage of future appreciation (between 30% to 75%) the homeowner must sell in order to receive that amount. The purchase price from EquityKey is paid within 4-6 weeks of application, the homeowners do not make monthly or interest payments, and there are no restrictions on how the proceeds can be used. It is expected the agreement will last at least 7 - 10 years. The exact duration, in months, is specified in the agreement. The agreement ends when the home is sold or transferred. Homeowners can terminate anytime. However, doing so in advance of the specified duration will likely result in early termination charges.

 

Pros & Cons

Marketed as an alternative to reverse mortgages, EquityKey can provide resources to help pay for long term care for seniors who own their homes or own a second home. That said, it is not always the best option and there are limitations.

There are two major eligibility differences between an EquityKey agreement and a reverse mortgage. With a reverse mortgage, the homeowner must be at least 62 years of age and they are required to live in the home. EquityKey has neither of these requirements. Also, reverse mortgages have no early termination fees, while EquityKey does.

Given these differences, EquityKey is:

  • Not a good option for single seniors with life expectancies of less than 10 years.
  • Worth considering for married couples in which one spouse requires care and the other has a life expectancy of 10 years or more.
  • Worth considering for married couples in which both spouses have a 10 year+ life expectancy.

In practical terms, in the area of long term care, EquityKey is best used to make major home modifications, such as installations of ramps and lifts, which will allow an individual to remain in their home despite aging challenges.  Alternatively, it can be used to pay for residential care, such as assisted living for one spouse, while the other continues to live at home.

 One can learn more about the pros and cons of reverse mortgages here and read about other options to use one's home to pay for care here

 

Eligibility Requirements

Personal Factors
Applicants must be at least 18 years old.  Their income and credit score are considered to minimize the risk of foreclosure. 

 The homeowner's life expectancy is not considered by EquityKey as an eligibility factor but should be considered by the homeowner due to the program's early termination clause.


Home Requirements

  • Homes with existing mortgages of up to 80% of the home's value are eligible. 
  • Homes must have a minimum value of $100,000. 
  • At present this program is available in California and Florida. However, as of 2016, there are plans for a national rollout.

 

Benefits and Limits

EquityKey will provide payouts in a single lump sum.  There are no restrictions on how the proceeds from an EquityKey agreement can be used. The cash advance limit is 6%-17.25% of the home’s value.

Proceeds from an EquityKey agreement may affect a senior’s Medicaid eligibility or other state and federal benefits.

 

Costs and Fees

The costs associated with an EquityKey agreement should be considered at two levels. There is a home appraisal fee in order to begin the application process, and there is the cost associated with selling a percentage of the home’s appreciation.

1) Appraisal Fee - when beginning the application it is necessary to have the home appraised. This fee comes at the owner's expense.

2) 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. Having said that, one can look at the Case-Shiller Home Price Index historically and estimate if they feel EquityKey's offer is reasonable.

Early Termination Fees
If the homeowner (or their relatives, should the homeowner pass) choose to sell the home before the agreed upon duration of the agreement (typically 7 - 10 years) has expired, EquityKey charges an early termination fee. The actual amount of the fee is at least what the homeowner received when entering the agreement.  Therefore ending the agreement early for any reason should be avoided and persons who foresee that possibility should seriously consider if EquityKey is their best option. 

 

How to Apply

EquityKey has closed for business. They no longer maintain a website and the phone number does not work. This webpage is maintained strictly for historical purposes.