Don’t Sign Away Your Home Equity! What You MUST Know About HEA Loans

[0:00]Careful of loans that tell you that you can borrow from your home equity and the money owed will be added to the back of your loan. Or you can tap into your equity and have no payments for years. Now, there are better alternatives. But first, let us discuss what is an HEA loan? HEA or home equity agreement. So why is it not often a good fit? Homeowners lose part of their appreciation, sometimes 10 to 20% of future value. Settlement costs can be significantly higher than traditional financing. Some programs charge additional valuation or origination fees. It can complicate future refinancing or home equity line of credit approval because of the subordinate lean. If value dropped, the homeowner still owed that full home equity agreement loan amount. What is it actually? It is not a loan, not a refinance or loan line of credit. A third-party investor gives you the homeowner cash today in exchange for a share of your home's future appreciation and sometimes depreciation. There are no monthly payments, but you, the homeowner, must settle the agreement typically within 10 to 30 years or when you sell or refinance. When settling, the investor is repaid the original amount plus a percentage of the home's value gain. So now, why is it confusing? Some lenders or sales reps may say, the loan amount gets added to the back of the first mortgage, but that's misleading. Because there are no actual modification to the first trust deed, the HEA or home equity agreement simply records a subordinate lien or a memorandum of agreement against the property. Because there are no monthly payment, homeowners may think it's a deferment or modification when in reality, they're selling a part of their future equity. So, there are better alternatives. If the goal is to pull equity, borrowers might instead consider. a home equity line of credit, which is a revolving line with interest only payments, flexible draws. You may also, uh, have a home equity line now with fully amortized payment and, uh, a fixed interest rate. You may also consider a home equity loan, which is a fixed amount, fixed rate, predictable payments. Um, a cash out refinance wherein you can consolidate and reset at today's interest rate if favorable. Also remember that you can keep your current loan terms in years. For example, if you have 25 years remaining on your mortgage, you may refinance that loan at a 25 year without going back to the 30 years. Now, there's also the reverse mortgage for seniors 62+, where no payments are required and you retain full ownership. There's a smarter way to tap your home's equity, so I usually say. Hey homeowners, before you sign away your future equity, let's talk real options. You may have heard of companies offering to help you pull your cash now and add the balance to the back of your loan. Sound easy, right? But here's the truth. There's not a refinance, that's not a refinance or home equity line, it's an equity sharing agreement. They give you cash today, but in return, they take a share of your home's future appreciation. That means your home value go up, you lose part of your profit. There are better, smarter ways to access your home equity while keeping 100% of your ownership. One, there's the home equity line of credit, which is flexible or fixed rate, fully amortized or interest only payment and credit lines you can use when you need. There's also the home equity loan, fixed rate, cash out options with predictable payment. There are cash out refinance which resets your rate, consolidates your debt, or fund major goals. Also remember the reverse mortgage for seniors 62+. Now, for more answers, give us a call at the Frater Team, 888-613-8325, we're your local lender with solution to your home equity question.