Demand for home equity investments broadly has increased in recent years as home values have benefitted from home price appreciation and homeowners have locked in low mortgage rates with little incentive to move. As demand for home equity financing has picked up, so too has interest in a relatively newer home equity financing option: home equity investments (“HEI”). But what exactly are they?
In simple terms, HEI allow homeowners to tap into the equity they’ve built in their homes without taking on additional debt. Instead of a traditional loan or mortgage refinance that includes a monthly interest payment, an HEI involves selling a portion of your home’s future appreciation in exchange for immediate cash. This means homeowners get to leverage their home’s value without having to make monthly repayments, potentially providing a significant financial relief.
The surge in demand around home equity investments can be attributed to several factors. Firstly, the real estate market has experienced substantial growth, leading to increased home values. Homeowners are finding themselves with more equity than ever, and the appeal of accessing this equity without increasing their debt load is strong.
In addition, during the period of 2020 to 2021 when mortgage rates were at historically low levels, many homeowners refinanced or took out a new mortgage with an interest rate substantially below where prevailing rates are today. As a result, many homeowners are not incentivized to sell their current homes or move to a new home, even with the increase in home values, as doing so would require taking out a new mortgage at a substantially higher rate. This has created a lock-in effect where homeowners are essentially “stuck” in their current homes and looking for other ways to monetize their trapped home equity. Without selling one’s home, homeowners may seek to monetize their home equity by taking out an HEI.
Home Equity Investment vs. Home Equity Loans: What’s the Difference?
A critical feature of HEI financing is the lack of a monthly principal or interest payment. With rates elevated, many home equity options involve taking on additional debt at a time when debt is particularly expensive. In some cases, HEI presents a more cost-efficient way for a homeowner to access the equity in their homes relative to traditional home equity financing, such as a home equity line of credit (HELOC).
Additionally, the economic uncertainty of recent years has left many individuals looking for ways to shore up their finances. With no restriction on how HEI funds are used, home equity investments offer homeowners a viable solution by providing funds that can be used for virtually any purposes, such as to make home improvements, consolidate debt, or even for other opportunities like purchasing a second home or investment property or funding personal projects.
Another reason for the heightened interest is the innovation within the financial sector, where a number of new companies have made home equity investments more accessible in the last few years. These companies, many of which are considered “fin-tech” firms, streamline the process of obtaining an HEI, making it easier for homeowners to understand their options and complete transactions. This ease of access, combined with the financial flexibility that home equity investments offer, has made them an attractive alternative to traditional financing methods like cash-out refinancing, HELOCs/second mortgages or reverse mortgages.
In conclusion, HEI are gaining traction because they offer a unique way for homeowners to unlock the value of their property without the burden of additional debt. As home values continue to rise and financial technology evolves, this innovative financial tool is likely to become an even more integral part of personal finance strategies. Whether used for immediate financial needs or long-term planning, home equity investments provide a flexible and appealing option for today’s homeowners.
At Aspire, we recognize that taking out an HEI on your home is a significant financial decision. While we are not a financial advisor we are here to help homeowners evaluate how an HEI might help them achieve their financial objectives.
To see how much cash might be available for you, check to see if your home is eligible today!
