Home equity investing Archives

December 21, 2022December 21, 2022

HEIs: A Student Loan Forgiveness Alternative?

With the average cost of a college education at $10,740 and $38,070 per year for public and private institutions respectively, and rising by the year, it’s no surprise that the typical student loan borrower owes $28,950, and more than half of all students from public institutions (55%) have student loans. Currently, national student debt totals $1.75 trillion, with individuals ages 25–34 saddled with the brunt of it; this group owes a collective $500 billion in debt.

Today, the federal student loan program consists of direct subsidized loans, which provide up to $5,500 to undergraduate students in need. For loans that were disbursed on or after July 1, 2022 and before July 1, 2023, the interest rate is 4.99%. There are also direct unsubsidized loans that don’t require financial need and provide undergraduate, graduate, and professional degree students with up to $20,500 in funding. Like the subsidized loans, the interest rate is 4.99% for undergraduate students, but is higher for graduate and professional degree students at 6.54%. In March 2020, the federal government paused student loan payments. That pause has been extended until at least January 2023.

Student Loan Forgiveness Proposed — And Blocked

On August 24, 2022, President Biden announced a planned student loan forgiveness program that cancels up to $20,000 in debt for Pell Grant recipients, which includes those with direct student loans as well as select Perkins and FFEL loans, and up to $10,000 for non-Pell Grant recipients.

There were some established criteria applicants needed to meet in order to qualify for this program, including an adjusted gross income (AGI) of less than $125,000 for individuals, and $250,000 for married couples and head-of-household. This income cap could be based on either 2020 or 2021 federal tax returns. Those who had private student loans would be ineligible. However, only 8% of student loans are private, allowing the vast majority of loan recipients to potentially take advantage of the forgiveness program as long as they met the income requirements.

In mid-October, the Department of Education published the student loan forgiveness application, which was fairly short and didn’t require any additional documents or a Federal Student Aid (FSA) ID, prompting millions of individuals with loans to apply.

However, on November 10, 2022, a federal judge in Texas struck down Biden’s forgiveness program, stating that it was illegal. This was after another legal challenge had also stopped the program in its tracks. While the Justice Department plans to appeal this ruling and hopes to provide the 16 million previously approved borrowers with expedited relief if and when the ruling is overturned, those who are in need of quicker financial assistance might be seeking ways to begin making progress toward eliminating student debt in the meantime — and even after receiving loan forgiveness if they owe more than the $10–20,000. There are also those who don’t meet the income requirements that are still in search of solutions to eliminate their student debt.

An Alternative Option to Pay Down Student Loans

If you’re a homeowner, a home equity investment (HEI) can be an ideal way to get rid of student debt depending on your personal goals and situation. Not only is it a good way to potentially take advantage of the recent record high amounts of home equity, but because there isn’t any interest or monthly payments, you can potentially pay off your own or your child’s loans more quickly than with other options. If the loan forgiveness program pushes through and you still have an outstanding balance beyond the maximum relief cap, a HEI could help pay it off. And there aren’t any restrictions on how the funds are used, so you can accomplish other financial goals like paying off credit card debt or making home repairs.

Plus, the effective period of a Hometap Investment is 10 years, giving you time to handle bigger financial priorities before beginning to pay off loans, or vice versa.

Take our five-minute quiz to see if a Hometap Investment might be a good way for you to begin eliminating student loan debt.

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We do our best to make sure that the information in this post is as accurate as possible as of the date it is published, but things change quickly sometimes. Hometap does not endorse or monitor any linked websites. Individual situations differ, so consult your own finance, tax or legal professional to determine what makes sense for you.

August 31, 2021June 23, 2022

How an Investment Increase from Hometap Works

Did you know that if you’ve taken a Hometap Investment that’s less than the full amount you originally qualified for, you may be able to receive a new Investment to access additional equity? It’s true, and we call it an Investment Increase.

Homeowners opt to access more home equity for all kinds of reasons: they miscalculate the cost of their home renovation project; their business is growing faster than expected and they need more funding to scale; now that debt is gone, there are new financial goals to consider — the reasons are virtually limitless. And Investment Increases are a great way to help get you where you want to be.

Below, we answer some common questions you might have before you tap into additional equity with us.

How will I know how much I qualify for?

You may be able to get a very general idea by referencing your first Investment Estimate and subtracting the amount you tapped into. That being said, there are many moving parts and factors that can change quickly in the time that has passed between your Investments, so it’s a great idea to check with your Investment Manager, who will walk you through each step of the process again.

Will I work with the same Investment Manager?

While we do our best to pair you with the same Investment Manager you worked with the first time around, there are some cases when it’s not possible. However, every one of our Investment Managers is committed to providing our homeowners with the best experience possible, and we’re confident that you’ll be happy with any of our helpful team members!

Will I need another appraisal? Will I have to pay the same closing costs?

Since appraisals expire after 90 days, you’ll likely need another appraisal if you’re taking another Investment after that point. You can also expect similar closing costs as you were responsible for with the first Investment. The closing cost fee will only apply to the second Investment amount. As with the first Investment, this will be deducted from the funding amount, so you won’t have any out-of-pocket expenses.

Are there benefits to an Investment Increase, beyond the additional funding? Can I expect a shorter timeline for funding? More efficient process? Do I need to upload all of the same documents I did the first time?

This all depends on the amount of time between Investments. While your time frame may be shortened the second (or third) time around, most of the documentation we require expires after 90 days, so you’ll likely need to provide more recent versions.

Are there any factors that could make me ineligible for an Investment Increase? (e.g. if my financial situation has changed for the worse since my first Investment, is it possible for me to not qualify for a second Investment?)

Yes, this is possible. To ensure that you’re still eligible for another Hometap Investment, we’ll need to take a fresh look at your financial situation.

If I want to move forward with an Investment Increase, what is the first step I should take in reaching out to Hometap? Where should I go, and who should I contact?

To begin the process of an Investment Increase, you can reach out to the Investment Manager you worked with for your first Investment. They’ll direct you to fill out a new Investment Estimate request so we can determine if and how much equity you’re eligible to access.

It’s been a few years and I’ve forgotten the name of my Investment Manager. What should I do?

Not a problem. You can either submit a new estimate request when you log into your account, and your Investment Manager will follow up with you, or you can send an email to hello@hometap.com — just tell us you’re interested in an Investment Increase and need to be connected with your Investment Manager. We’ll take care of the rest.

Thank you for considering Hometap (again!) to access additional equity from your home to accomplish your financial goals.

March 15, 2021February 5, 2023

Home Equity Investments: A Smart Reverse Mortgage Alternative

One of the questions we receive most often at Hometap is whether a home equity investment is like a reverse mortgage. In short, the answer is no. While they may appear similar on the surface, the two are actually different in just about every way. Below, we’ll compare Reverse Mortgages vs. Home Equity Investments so you understand exactly how they differ.

How Do Reverse Mortgages Work?

A reverse mortgage can be a good option for older homeowners looking to get some extra cash to supplement their retirement funds. According to the National Reverse Mortgage Lenders Association, senior housing wealth reached a record $7.54 trillion in Q4 of 2019, representing a major opportunity for retirees to tap into the cash that’s tied up in their homes.

With this type of loan, the lender actually pays you every month, the homeowner, based on a percentage of your home’s value, rather than the other way around. You can also get cash fairly quickly, which can be a huge help to retirees who find themselves without a large amount of retirement savings. While this may seem very appealing on the surface, it’s important to understand the ins and outs, because reverse mortgages are more complicated than they appear.

This might be one reason why, according to Reverse Mortgage Daily, they’re used far less than other means of accessing equity.

“Whether it’s a reverse mortgage or a home equity loan, or cash-out refinance, they just are not showing any meaningful desire to liquefy the equity in their home,” says researcher Karan Kaul. “And, that may be because they don’t want to take on debt in their 60s, 70s and 80s. They may want to leave a bequest, or they may just be trying to stay financially conservative.”

Read more about your options with Reverse Mortgages in Retirement: When to Sign On and When to Steer Clear >>

There are three different types of reverse mortgages: single-purpose, proprietary, and Home Equity Conversion Mortgages (HECMs). Each is slightly different, and it’s wise to consider the nuances of each one to find the best fit.

Single-purpose mortgages, like the name suggests, are limited in their use as dictated by the lender — like, for example, home repairs or property taxes. They don’t cost as much and have fairly flexible qualification criteria, but aren’t as widely available as other choices, mostly provided by state and local governments and some nonprofits.

Proprietary mortgages are private mortgages that aren’t federally-insured and therefore, aren’t typically subject to as much regulation as single-purpose or Home Equity Conversion Mortgages. So if you’re seeking more equity from your home or simply have a home that’s of high worth, you might have more luck with a proprietary mortgage.

Finally, Home Equity Conversion Mortgages are backed by the U.S. Department of Housing and Urban Development. Once you’re approved, you can use the funds for anything you’d like, and there isn’t a firm income requirement to qualify. However, your loan amount will be capped at about half your equity, and they can be more expensive than traditional home equity loans. It’s for this reason that those looking to access equity from a high-value home might find proprietary mortgages to be more attractive.

Pros and Cons of Reverse Mortgages

The biggest advantage of a reverse mortgage is that unlike a regular (forward) mortgage, you don’t need to make monthly payments and the loan balance won’t come due until the loan matures. This can be a huge plus for homeowners on fixed incomes who want to stay in their homes. It can also help delay the need to pull money out of Social Security earlier, potentially helping you get bigger and better benefits later on.

However, you’re still responsible for taxes and insurance on the home, and those costs can add up. You’re also required to use the property as your primary residence for the life of the loan, and an unexpected 12-month stint in a nursing home would be considered a permanent move, making you responsible for paying back the loan. Overall, despite the lack of monthly payments, the fees associated with reverse mortgages are often higher than those of traditional mortgages.

You must be 62 years old to qualify for a reverse mortgage, which immediately rules it out as an option for many homeowners. Finally, a reverse mortgage decreases your home equity and increases your debt, since the interest becomes part of the loan balance over time rather than being due upfront.

Read more about the pros and cons of a reverse mortgage >>

Frequently Asked Questions About Reverse Mortgages and HECMs

What is the difference between a HECM mortgage and a reverse mortgage?

Home equity conversion mortgages (HECMs) are a type of government-backed reverse mortgage that give you up to approximately half of your home’s equity to use as you wish. There are two other types of reverse mortgages — single-purpose, which are limited in their approved use, and proprietary, which aren’t federally insured and aren’t as highly regulated — so it all depends on what works best for you.

Why do people dislike reverse mortgages?

While reverse mortgages can be a good fit for some homeowners, the criteria can be restrictive in terms of who qualifies — they’re only available to homeowners aged 62 or older. You’re also required to use the property as your primary residence for the life of the loan, so it might not be the best for everyone.

What is the H4P program?

The H4P program is a reverse mortgage program that allows seniors aged 62 or older to buy a new primary residence using the proceeds from their HECM loan at the same time — when they take out the mortgage, they purchase the home as well.

What credit score is needed for reverse mortgage?

There are typically no firm credit score requirements for a reverse mortgage, though criteria might vary by lender.

Home Equity Investments: A Reverse Mortgage Alternative

If you’re worried about these disadvantages, consider the alternatives to reverse mortgages. There are the more traditional avenues, but they may not be the best choice if you want to avoid taking on more debt or monthly payments.

For example, a home equity loan gives you a lump sum of cash and tends to have a fixed rate and predictable monthly payment. However, the loan installments come on top of your existing mortgage payments, so older homeowners may not want or be able to handle both.

A cash-out refinance is another option that involves taking out a new mortgage on your home and potentially locking in a lower interest rate — but there are closing and origination fees, and they’ll likely extend your mortgage payoff timeline.

Finally, home equity lines of credit (HELOCs) give you flexibility in terms of the amount of cash and frequency with which you can take it out. However, the application and approval process can be challenging, and the variable interest rate means that monthly payments will be unpredictable, so it may not be a great fit for older homeowners looking to keep spending down.

Fortunately, there’s also a fairly new option, a home equity investment. It gives you near-immediate access to cash without monthly payments — just like a reverse mortgage — but without any interest or additional debt. Since Hometap is an investor, not a lender, it can provide you with up to 30% of your hard-earned equity in exchange for a share of your home’s future value.

There’s no age minimum or firm credit score requirement, and you can use the money for whatever is most important to you, whether it’s getting rid of debt, completing a home renovation, paying off medical bills, or anything else you want; it’s up to you. Quickly compare reverse mortgages and home equity investments with the chart below.

You should fully understand your options before making a decision, as Hometap Investments do have an effective period of 10 years, by which point you’ll need to settle. While you don’t have to sell your home to do this — a buyout with savings or a home refinance works, too — it’s something to take into consideration if you don’t think you’ll be able to refinance or buy out the Investment.

It only takes five minutes to see if a Hometap Investment might be a good reverse mortgage alternative for you.

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January 25, 2021January 5, 2023

How to Get Equity Out of Your Home: 5 Solutions

When it comes to financing your home, one size doesn’t fit all. And while traditional options like loans, home equity lines of credit (HELOCS), refinancing, and reverse mortgages can work well for some homeowners, the recent rise of loan alternatives like home equity investors and other emerging platforms have made it clear that there’s a growing demand for other choices. Learn more about alternative ways to get equity out of your home, so you can make a more informed decision.

Traditional Options: Pros and Cons

Loans, HELOCs, refinancing, and reverse mortgages can all be attractive ways to tap into the equity you’ve built up in your home. However, there are often as many disadvantages as there are benefits — so it’s important to understand the pros and cons of each to understand why some homeowners are seeking financing alternatives. See the chart below to quickly compare loan options, then read on for more details on each.

Home Equity Loans

A home equity loan is one of the most popular ways that homeowners access their equity. There are certainly advantages, including a predictable monthly payment due to the loan’s fixed interest rate, and the fact that you’ll receive the equity in one lump sum payment. For this reason, a home equity loan typically makes sense if you’re looking to cover the cost of a renovation project or large one-off expense. Plus, your interest payments may be tax-deductible if you’re using the money for home improvements.

Why search for a home equity loan alternative? A few reasons: First, you’ll need to pay off the loan in addition to your regular mortgage payments. And if your credit is less-than-excellent (under 680), you may not even be approved for a home equity loan. Finally, the application process can be invasive, cumbersome, and taxing.

Home Equity Lines of Credit (HELOC)

HELOCs, a common alternative to a home equity loan, offer quick and easy access to funds any time you need them. And while you typically need a minimum credit score of 680 to qualify for a HELOC, it can actually help you improve your score over time. What’s more, you might be able to enjoy tax benefits — deductions up to $100,000. Since it’s a credit line, there’s no interest due unless you take out money, and you can take out as much as you want until you hit your limit.

But with this flexibility comes the potential for additional debt. For example, if you plan to use it to pay off credit cards that have high interest rates, you can wind up racking up more charges. This actually occurs so frequently that it’s known to lenders as “reloading.”

Another major downside that may encourage homeowners to seek a HELOC alternative is the instability and unpredictability that comes along with this option, as the variability in rates can lead to fluctuating bills. Your lender can also freeze your HELOC at any time — or reduce your credit limit — in the event of a drop in your credit score or home value.

Discover how common it is for homeowners like you to apply for home loans and HELOCs, in our 2021 Homeowner Report.

Cash-out Refinance

One alternative to a home equity loan is a cash-out refinance. One of the biggest perks of a cash-out refinance is that you can secure a lower interest rate on your mortgage, which means lower monthly payments and more cash to pay for other expenses. Or, if you’re able to make higher payments, a refinance might be a good way to shorten your mortgage.

Of course, refinancing has its own set of challenges. Since you’re essentially paying off your current mortgage with a new one, you’re extending your mortgage timeline and you’re saddled with the same charges you dealt with the first time around: application, closing, and origination fees, title insurance, and possibly an appraisal.

Overall, you can expect to shell out between two and six percent of the total amount you borrow, depending on the specific lender. Even so-called “no-cost” refinances can be deceptive, as you’ll likely have a higher rate to compensate. If the amount you’re borrowing is greater than 80% of your home’s value, you’ll likely need to pay for private mortgage insurance (PMI).

Clearing the hurdles of application and qualification can lead to dead ends for many homeowners who have blemishes on their credit score or whose scores simply aren’t high enough; most lenders require a credit score of at least 620. These are just some of the reasons homeowners may find themselves seeking an alternative to a cash-out refinance.

Reverse Mortgage

With no monthly payments, a reverse mortgage can be ideal for older homeowners looking for extra cash during retirement; a recent estimate from the National Reverse Mortgage Lenders Association found that senior citizens had $7.54 trillion tied up in real estate equity. However, you’re still responsible for the payment of insurance and taxes, and need to stay in the home for the life of the loan. Reverse mortgages also have an age requirement of 62+, which rules it out as a viable option for many.

There’s a lot to consider when looking at traditional and alternative ways to access your home equity. The following guide can help you navigate each option even further.

Looking for an Alternative? Enter the Home Equity Investment

A newer alternative to home equity loans is home equity investments. The benefits of a home equity investment, like Hometap offers, or a shared appreciation agreement, are numerous. These investors give you near-immediate access to the equity you’ve built in your home in exchange for a share of its future value. At the end of the investment’s effective period (which depends on the company), you settle the investment by buying it out with savings, refinancing, or selling your home.

With Hometap, in addition to an easy and seamless application process and unique qualification criteria that is often more inclusive than that of lenders, you’ll have one point of contact throughout the investment experience. Perhaps the most important difference is that unlike these more traditional avenues, there are no monthly payments or interest to worry about on top of your mortgage payments, so you can reach your financial goals faster. If you’re seeking alternative ways to get equity out of your home, working with a home equity investor might be worth exploring.

Is a Hometap Investment the right home equity loan alternative for you and your property? Take our five-minute quiz to find out.

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December 23, 2020May 20, 2022

5 Smart Ways to Consolidate Growing Debt

Debt can wreak havoc on your ability to achieve your financial goals. That’s why it’s critical to pay off debt quickly so you can get your finances—and life—back on track. While it may feel impossible to get out of debt, consolidation can help you chip away at the burden. Here are five ways to do it.

1. Tap Into Your Largest Asset

As a homeowner, you can access your equity through a HELOC, home equity loan, cash-out refinance, or home equity investment and pay off your debts in full. A home equity investment, like Hometap provides, allows you to get cash to pay for what’s most important to you without the hassle of monthly payments or interest.

The option that will make the most sense for you depends on your debt and financial goals. Compare your options using our guide to find the best one for you.

Take our 5-minute fit quiz to get started.

2. Use a Balance Transfer Credit Card

Depending on the amount of debt you have, you may be able to transfer it all to one credit card. If you transfer it to a credit card with a 0% interest promotional period, you can avoid paying interest. You’d then have only one monthly payment while eliminating the high interest your other cards carried.

However, you’ll still need to qualify for these cards, which may require a good credit score. Plus, if you can’t pay off the debt by the end of the promotional period, you may end up paying more through higher interest. You’ll need to stick to a disciplined payment schedule if you want to avoid additional debt.

3. Take Out a Personal Loan

If you can secure a personal loan with a lower interest rate than the rate on your current debts, it may make sense to take out a loan.

Personal loans don’t require collateral. That means they don’t require you to back the loan with assets like your house or car in case of nonpayment. You’ll still need a good credit score, however, especially if you’re hoping for a low-interest rate.

4. Consider Debt Settlement

Debt settlement isn’t so much debt consolidation as it is payment consolidation. With debt settlement, a firm negotiates with your creditor(s) to lower the total amount of debt you owe. You then make one monthly payment to a settlement firm.

While that may sound ideal, you’ll want to look into the details. The process can take months, you’ll be racking up interest, in the meantime, and the firm will charge a fee. You may even have to pay taxes on the forgiven debt, and your credit score can be affected for seven years.

5. Borrow From Retirement

Consider this option with caution: If you have a retirement plan you may be able to take out a 401(k) loan. You’ll need to determine if your specific plan allows this and its terms. If you pay the loan back on time (usually five years), the cost to you is relatively low. The interest you pay on the loan actually goes back into your own account. You can also repay the loan without prepayment penalties and many plans may allow you to take payments out of your paycheck.

Over 50 and have $0 for retirement? Here’s your roadmap to get on track >>

But if you don’t pay your loan back on time, you’ll likely have some serious setbacks. At this point, it’s considered an early withdrawal, which means you’ll face a penalty and income tax. You’ll also want to consider your job status. If you leave your job, you’ll have to pay the loan back within 60 days.

Take our 5-minute quiz to see if a home equity investment is a good fit for your debt consolidation goals.

DISCLAIMER

The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, consult with a licensed advisor.

September 18, 2020June 17, 2022

Tag: Home equity investing