Been hearing these ads on the radio (unlock.com) and seen a few others.
Are these better than HELOCs? Haven't really dug into them but seems like there is some fee paid upon contract end and also some % of increase in equity during the contract time frame.
Is this a good option if you're looking for ways to access equity without a 2nd loan or selling?
Unlock.com is a "shared equity agreement". These have a place in some circumstances, but don't fit everyone's needs.
10,000 foot overview:
Your home appraises for $1.5m
Your current loan is $750k
They "lend" $250k. No payments are ever due on this $250k
You decide to sell in 3 years and your value is now $1.750m as per sales contract, not an appraisal. You've gained $250k in value, of which "Unlock.com" will take 1/2, or $125k, plus their original $250k.
Some important considerations
1) If you sell in 3 years and your home has a market offer at $1.50k, you give back the $250k.
2) If you sell in 3 years and your home has a market offer at $1.40k, you give back $240k.
3) If rates fall and you want to refinance, "Unlock.com" will tell you that there are "some" lenders willing to refinance you. The problem is that "some" is really "few" and I hope you really, really want an ARM loan or a high rate fixed loan, because everyone else will never do the deal.
4) Why 3 years? The Equity Share Agreements have a 3 year lock out IF AND ONLY IF property values drop. If values rise, you can still sell or buy out the contract. You have to wait 3 years to sell or buy out the contract if values fall.
So in the first scenario, assume a HELOC at an AVERAGE rate of 9% for $250k is $2,097.99 (P+I). Assume you make 36 payments, that's $75,000 paid, but "unlock.com" is going to take $125k profit assuming also that the value of your home remains at $1.5M. You lose in this case. What happens in 6 years (72 payments), that's $151,000 and "unlock.com" is going to take.... $125k profit. You win in this case.
Who knows what you'd do with the $250k cash you get. You might buy AAPL or BTC and make bank, or lose it completely, of course. If you invest and "win", you improve your odds of the Equity Share Agreement working out in your favor.
I know someone who had one of these and for the first 15 years it worked out great. Had they paid it off in 2018 or so, they would have come out ahead. Since values have gone supernova, the payoff of the Equity Share is very high and did not work as well as they had hoped. Of course this is 20/20 hindsight. Value changes are 100% speculative, and it's hard to say if a $2M home will go to $3M, or be stagnate for a while.
Because of the unknown direction of property values, I'd recommend against an Equity Share Agreement and take the higher rate HELOC. You can always get a HELOC and not draw against it so your cost of money is zero.
