A Loan With NO Interest Rate and No Payments. Huh?
Peaches N. Jensen
PeachTree Financial Corporation
Actually, there is such a thing — but it’s not a loan. So what is it? It’s called an investment partnership. Here’s how it works:
Say your home is worth $700,000 and you need about $100,000 in cash. If you agree to give-up 60% of your home’s future appreciation over and above your current base value of $700,000, you’re eligible for up $105,000* in an upfront cash investment. There are never any payments, and you can use the funds for any purpose.
The investment partnership ends when:
— You sell your home, move or die; or,
— 3 years have passed and you buy-out the investment partnership; or
— 30 years have passed and the agreement ends.
Example #1: Your home has gone up in value, and you sell it five years into the investment partnership. The initial investment of $105,000 plus 60% of any appreciation is paid to the investor. The remaining 40% of any appreciation belongs to you. Remember, the $700,000 base value also belongs to you.
Example #2: Your home’s value remains the same, and you sell it five years into the investment partnership. Only the initial investment of $105,000 is returned to the investor. The rest of the net proceeds of the sale go to you.
Example #3: Your home has gone down in value, and you sell it five years into the investment partnership. The investor is now entitled to no appreciation and shares in 60% of the loss! What bank would agree to that?
P.S. If you don’t like the idea of pledging your future appreciation, and you’re at least 62 years old, you can still gain access to funds without a monthly mortgage payment. It’s called a reverse mortgage. More on that next time…
If any of this sounds interesting, give us a call.
*Minus a 3.9% transaction fee, so your net cash would be $100,905.