Over the next decade, millions of Canadian households are going to reach the milestone of retirement. But, what should be a cause for celebration has instead left many worried about how they’re going to pay for it.
Although nearly two-thirds of Canadians 55 and older own a home, according to a survey from the Healthcare of Ontario Pension Plan, it can be challenging for retirees — or those approaching retirement age — to access the equity they’ve worked so hard to build up. Many want to age in place for as long as possible, so selling immediately isn’t an option. Others find it impossible to work with the banks on alternate solutions, such as a home equity line of credit (HELOC), since they don’t meet the rigid lending requirements, which often aren’t favourable for those living on fixed or reduced incomes.
With these challenges in mind, The Home Equity Partners have introduced a new way for Greater Toronto Area homeowners to tap into their equity: the HESA, short for Home Equity Sharing Agreement.
What Is A HESA?
Through a HESA, homeowners who have at least 30% equity in their primary residence may be eligible to partner with The Home Equity Partners to obtain anywhere from 5% to 17.5% of the value of their home, right up front, typically within 30 days (or fewer). Homeowners then have 10 years to repay the investment, with no penalties for doing so early.
After 10 years, or when homeowners sell (whichever comes first), The Home Equity Partners are entitled to a fractional share of the home’s appreciation over the agreement period. This is calculated by a multiplier of four: so, for example, if a homeowner receives 5% of the estimated value of their home, The Home Equity Partners obtain a 20% share of the appreciation.
However, if the value remains flat, the homeowner is only responsible for paying back the initial investment. And, if prices drop, The Home Equity Partners subtract the percentage of the decline from the initial investment.
“We share in the upside, we share in the downside. We’re not in it for the interest. We’re in it to be a partner with the homeowner,” explains Shael Weinreb, CEO and Founder of The Home Equity Partners.
If you’re approaching retirement, or you’re already one of the millions of retirees who call the GTA home today, here are five reasons to consider a HESA to leverage your hard-earned equity.
1. You don’t pay any interest
Unlike a reverse mortgage or a home equity line of credit (HELOC), you don’t pay any interest on your HESA — and that’s especially good news in today’s high-interest rate environment.
“Household debt is rising significantly, and for a lot of people, taking on more debt at higher interest payments to pay off other debt… it becomes a nightmare scenario,” says Weinreb.
READ: HELOCs, Reverse Mortgages, and HESAs: Which Is Right For You?
2. It’s a flexible investment to suit your lifestyle
When you enter a HESA, you receive your investment up front. “You can obtain a lump-sum payment,” explains Alicia Pedicelli, Chief Revenue Officer at The Home Equity Partners.
This lump-sum payment provides considerable flexibility. For example, as Canadians age, many look to downsize at some point, but have most of their money tied up in their primary residence.
“This is an opportunity for somebody to access money that is interest free, and to be able to use it as a deposit on a condo,” Weinreb says.
You could also use a HESA to help a younger relative climb onto the property ladder by contributing to a downpayment. Or, you could simply pay down your existing debt.
Image via The Home Equity Partners
3. HESAs are all about accessibility
Canada’s big banks are known for having rigid lending requirements that don’t always take an individual’s unique circumstances into account. The Home Equity Partners do it differently.
“We’re taking a much more flexible and holistic approach than what the banks are doing today,” says Weinreb.
When determining whether a HESA is the right fit for a homeowner, the company won’t just focus on a credit score or income. For instance, if your home is in a particularly desirable area, that could tip the scales in your favour, where a bank may have rejected your application due to a lower fixed income.
4. It’s a low-fee alternative
Fees are another hurdle older Canadians often face when trying to tap into their home.
“There are expensive fees associated with a reverse mortgage,” says Weinreb. By comparison, HESA applicants are only responsible for a processing fee of 3.9% of the value of their investment, as well as minor legal and appraisal fees.
5. Your existing equity is protected
A reverse mortgage or HELOC can erode your existing equity over time. This isn’t the case with a HESA, which Weinreb and Pedicelli note is a forward-looking investment. “Any of your existing home equity, up until that point when you enter the HESA, is protected — we do not share in that at all,” says Pedicelli. “We only share in the appreciation moving forward.”
If you're ready to access financial freedom via your home's equity, without taking on debt, a HESA may be just the path you've been waiting for. To learn more about whether a HESA is right for you, visit The Home Equity Partners.
Visit www.theheqpartners.com to learn more.
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This article was produced in partnership with STOREYS Custom Studio.
