Most homeowners know home equity loans or lines of credit, but financial technology firms now promote a newer product: home equity investments, sometimes called contracts or equity sharing agreements. These arrangements give homeowners a cash payment in exchange for a share in their property's future value. The contracts are increasingly packaged as securities and sold to large investors. Consumer advocates and some state authorities argue these contracts are, in fact, a type of home loan with complex, often confusing terms that can put borrowers at risk of having their equity drained or losing their homes. The firms are accused of "mislabeling" transactions as investments to evade consumer protections that accompany traditional home loans.
Financial technology companies, including Hometap, Unlock, Unison and Point, give homeowners cash based on a percentage of the home's current value in exchange for a future share of the property's value. Homeowners agree to a lump-sum payment at the end of the contract term -- typically 10 or 30 years -- or if the home is sold. If homeowners cannot pay in full when the contract terminates, they may be forced to sell their home or take out another contract or mortgage.
These contracts are based mostly on home equity rather than credit scores or income, making them attractive to people with "less than perfect credit" and those without steady income. The contracts are not reported to credit bureaus and are "particularly useful" for homeowners who cannot qualify for traditional home loans. About two-thirds of homeowners used the funds to pay off debt, and just under a quarter used the money for home improvements. Institutional investors benefit from home value increases without the operational burden of owning properties directly. The number of investments by the three largest financial technology firms rose to more than 13,000 in 2024, compared with fewer than 200 in 2018. Americans hold roughly $35 trillion in home equity, driving increased tapping as some struggle to afford basic needs.
Source: New York Times Business · Summarized by HeadlinesBriefing