by Lauren Rosales-Shepard, Content Writer
At Unison, we’re fond of saying that we “pioneered” the equity sharing agreement, an innovative product that took note of conundrums faced by both homeowners and investors. Since then, we have paid close attention to the evolving needs and desires of homeowners, as well as the shifting state of the market.
When it comes to traditional options, like the closed end home equity loan or a home equity line of credit (HELOC), homeowners have been weary of increasingly high interest rates. And those who were lucky enough lock down favorable first mortgage rates on their homes have naturally been averse to refinancing, or moving into a new house, when the current rates are so much higher. No one actively wants to increase their monthly payments! Unison began to look at ways to help reduce monthly obligations and shorten the loan term. The result? Let us introduce you to the Unison Equity Sharing Home Loan!
Our Equity Sharing Home Loan is an interest-only, ten-year second mortgage that offers homeowners the opportunity to tap into their equity with low monthly payments. The interest rates are below-market for second mortgages, and the interest only payments are partially-deferred, leading to more flexibility for homeowners when it comes to managing their monthly finances. The shared appreciation component enables us to offer these lower rates. At the end of the loan, the homeowner pays back the principal, any deferred compounded interest, as well as a percentage of the home’s appreciation.
Let’s unpack each of these factors. To begin with, an individual’s interest rate is largely determined by their creditworthiness. Unison’s share in the home's future appreciation is fixed at the beginning of the origination process, and the amount is proportional to the amount of the Equity Sharing Home Loan. Unison's share is typically 1.5x the percentage borrowed. For example, if you borrow 10% of your home’s current value, Unison will receive 15% of the future appreciation. An important distinction is that unlike Unison’s Equity Sharing Agreement, Unison does not share in any depreciation in the home’s value.
Perhaps the first obvious comparison to make is between the traditional home equity loan and Unison’s Equity Sharing Home Loan. A “closed-end” home equity loan offers the homeowner the loan as an upfront lump sum, and the homeowner pays back a portion of the principal, plus interest at a fixed rate, each month for a set term–often 15 years.
Unison’s Equity Sharing Home Loan also starts with an upfront lump sum. However, the monthly payment is interest only, with a portion that is deferred. Then, at the end of the loan term (10 years–or, prepay before without penalty!), the homeowner will pay back the principal, any compounded deferred interest, and a percentage of the home’s appreciation in value.
Because monthly payments to Unison are interest-only–and that interest is partially-deferred, too!-- they are extremely low. This is especially the case when compared to other traditional forms of home equity financing, which require full interest, and a percentage of the principal amount every month (though this is not the case with HELOCs, as you will read below).
A HELOC is a line of credit that has a draw period and a repayment period. During the draw period, the homeowner is able to withdraw up to a specific amount of Funds. They often only need to pay interest on the amount that they have used each month, rather than interest on the entire amount available. (That said, even if you don’t withdraw any cash, there is often a small maintenance fee imposed). Then, during the repayment period–you guessed it, the homeowner repays the amount, with interest. It’s also important to note that HELOCs tend to have variable interest rates, which means that the interest can change based on market conditions.
In contrast, Unison’s Equity Sharing Home Loan has fixed interest rates, and the homeowner only pays a partial percentage of that interest on the loan each month–the rest is compounded, and deferred to the end of the loan. With a Unison Equity Sharing Home Loan, the homeowner will never experience uncertainty regarding their interest rate during the loan term. Plus, the partially-deferred nature of the interest keeps monthly payments low.
A reverse mortgage, as the name implies, differs from a regular mortgage in that the lender makes payments to the homeowner rather than the other way around–either in a lump sum, monthly installments, or as a line of credit. The loan becomes due when the homeowner permanently moves out of the home, sells the home, or passes away. At that time, the loan amount plus accrued interest and fees must be repaid, which is usually done through the sale of the home, with any remaining equity belonging to the homeowner or their heirs. One of their defining features is that reverse mortgages are only available to homeowners age 62 or older.
Unison’s Equity Sharing Home Loan does not have an age restriction. And while the reverse mortgage defers the entirety of accrued interest to the end of the loan, the Equity Sharing Home Loan does have monthly interest-only payments, with a percentage deferred to the end of the term. Additionally, while a reverse mortgage requires that the homeowner either own their home outright, or use part of the funds to pay off the remainder of the first mortgage, an Equity Sharing Home Loan is a second mortgage, which is not the primary lien on the property.
A cash-out refinance is the process of a type of mortgage refinancing where you borrow more than your current mortgage balance and receive the difference in cash. While the primary objective is, as the name implies, to get “cash out,” homeowners often also try to take advantage of more favorable interest rates at the same time, ensuring that they will have lower monthly payments even as they extend the amount of time they will be repaying the mortgage. Like with the original first mortgage, homeowners make monthly payments made up of interest and a percentage of the principal.
The Equity Sharing Home Loan is a second mortgage, and not a replacement mortgage for the underlying first mortgage. As such, it has a much shorter term–ten years. Plus, the monthly payment does not include a portion of the principal loan amount, as it, along with any compounded, deferred interest, and a percentage of the home’s appreciation, is repaid at the term’s end.
Unison developed the Equity Sharing Home Loan as an innovative option for homeowners who want to access the equity in their homes without moving and without exceedingly high monthly payments. Does this describe you? You can learn more today!
At Unison, we’re fond of saying that we “pioneered” the equity sharing agreement, an innovative product that took note of conundrums faced by both homeowners and investors. Since then, we have paid close attention to the evolving needs and desires of homeowners, as well as the shifting state of the market.
When it comes to traditional options, like the closed end home equity loan or a home equity line of credit (HELOC), homeowners have been weary of increasingly high interest rates. And those who were lucky enough lock down favorable first mortgage rates on their homes have naturally been averse to refinancing, or moving into a new house, when the current rates are so much higher. No one actively wants to increase their monthly payments! Unison began to look at ways to help reduce monthly obligations and shorten the loan term. The result? Let us introduce you to the Unison Equity Sharing Home Loan!
What is a Unison Equity Sharing Home Loan?
You’ve heard of the equity sharing agreement, and your’re familiar with home equity loans. The Equity Sharing Home Loan unites aspects of both products to suit the needs of consumers in this market.Our Equity Sharing Home Loan is an interest-only, ten-year second mortgage that offers homeowners the opportunity to tap into their equity with low monthly payments. The interest rates are below-market for second mortgages, and the interest only payments are partially-deferred, leading to more flexibility for homeowners when it comes to managing their monthly finances. The shared appreciation component enables us to offer these lower rates. At the end of the loan, the homeowner pays back the principal, any deferred compounded interest, as well as a percentage of the home’s appreciation.
Let’s unpack each of these factors. To begin with, an individual’s interest rate is largely determined by their creditworthiness. Unison’s share in the home's future appreciation is fixed at the beginning of the origination process, and the amount is proportional to the amount of the Equity Sharing Home Loan. Unison's share is typically 1.5x the percentage borrowed. For example, if you borrow 10% of your home’s current value, Unison will receive 15% of the future appreciation. An important distinction is that unlike Unison’s Equity Sharing Agreement, Unison does not share in any depreciation in the home’s value.
What are the benefits of a Unison Equity Sharing Home Loan?
- Below-Market Interest Rates for Second Mortgages*: You only pay up to 75 percent of your loan’s monthly payments every month and defer the remaining 25 percent of the interest payments to the end of the loan.
- Low Monthly Payments: The partially-deferred interest, plus the equity sharing component, keeps monthly payments low.
- Reach Your Financial Goals: When you save money on your monthly obligations, these savings can go elsewhere to further your financial goals.
- Flexible Terms: There is no prepayment penalty if you decide to pay off sooner.
- Hold on to Your Equity: We share in a portion of the future appreciation of your home, not the equity you’ve already built.
How does the Unison Equity Sharing Home Loan compare to other home equity financing options?
Home Equity Loan vs Equity Sharing Home Loan
Perhaps the first obvious comparison to make is between the traditional home equity loan and Unison’s Equity Sharing Home Loan. A “closed-end” home equity loan offers the homeowner the loan as an upfront lump sum, and the homeowner pays back a portion of the principal, plus interest at a fixed rate, each month for a set term–often 15 years.
Unison’s Equity Sharing Home Loan also starts with an upfront lump sum. However, the monthly payment is interest only, with a portion that is deferred. Then, at the end of the loan term (10 years–or, prepay before without penalty!), the homeowner will pay back the principal, any compounded deferred interest, and a percentage of the home’s appreciation in value.
Because monthly payments to Unison are interest-only–and that interest is partially-deferred, too!-- they are extremely low. This is especially the case when compared to other traditional forms of home equity financing, which require full interest, and a percentage of the principal amount every month (though this is not the case with HELOCs, as you will read below).
Home Equity Line of Credit (HELOC) vs Equity Sharing Home Loan
A HELOC is a line of credit that has a draw period and a repayment period. During the draw period, the homeowner is able to withdraw up to a specific amount of Funds. They often only need to pay interest on the amount that they have used each month, rather than interest on the entire amount available. (That said, even if you don’t withdraw any cash, there is often a small maintenance fee imposed). Then, during the repayment period–you guessed it, the homeowner repays the amount, with interest. It’s also important to note that HELOCs tend to have variable interest rates, which means that the interest can change based on market conditions.
In contrast, Unison’s Equity Sharing Home Loan has fixed interest rates, and the homeowner only pays a partial percentage of that interest on the loan each month–the rest is compounded, and deferred to the end of the loan. With a Unison Equity Sharing Home Loan, the homeowner will never experience uncertainty regarding their interest rate during the loan term. Plus, the partially-deferred nature of the interest keeps monthly payments low.
Reverse Mortgage vs Equity Sharing Home Loan
A reverse mortgage, as the name implies, differs from a regular mortgage in that the lender makes payments to the homeowner rather than the other way around–either in a lump sum, monthly installments, or as a line of credit. The loan becomes due when the homeowner permanently moves out of the home, sells the home, or passes away. At that time, the loan amount plus accrued interest and fees must be repaid, which is usually done through the sale of the home, with any remaining equity belonging to the homeowner or their heirs. One of their defining features is that reverse mortgages are only available to homeowners age 62 or older.
Unison’s Equity Sharing Home Loan does not have an age restriction. And while the reverse mortgage defers the entirety of accrued interest to the end of the loan, the Equity Sharing Home Loan does have monthly interest-only payments, with a percentage deferred to the end of the term. Additionally, while a reverse mortgage requires that the homeowner either own their home outright, or use part of the funds to pay off the remainder of the first mortgage, an Equity Sharing Home Loan is a second mortgage, which is not the primary lien on the property.
Cash-Out Refinance vs Equity Sharing Home Loan
A cash-out refinance is the process of a type of mortgage refinancing where you borrow more than your current mortgage balance and receive the difference in cash. While the primary objective is, as the name implies, to get “cash out,” homeowners often also try to take advantage of more favorable interest rates at the same time, ensuring that they will have lower monthly payments even as they extend the amount of time they will be repaying the mortgage. Like with the original first mortgage, homeowners make monthly payments made up of interest and a percentage of the principal.
The Equity Sharing Home Loan is a second mortgage, and not a replacement mortgage for the underlying first mortgage. As such, it has a much shorter term–ten years. Plus, the monthly payment does not include a portion of the principal loan amount, as it, along with any compounded, deferred interest, and a percentage of the home’s appreciation, is repaid at the term’s end.
Unison developed the Equity Sharing Home Loan as an innovative option for homeowners who want to access the equity in their homes without moving and without exceedingly high monthly payments. Does this describe you? You can learn more today!
About the Author
Dr. Lauren Rosales-Shepard
Dr. Lauren Rosales-Shepard is Unison’s content writer. She has a PhD in English from the University of Iowa, and after several years of teaching rhetoric and composition as a college professor, she joined Unison in 2022 to bring her writing and research skills to the realm of fintech in real estate.
