Most homeowners are familiar with home equity loans and HELOCs. These let you borrow money while putting your home equity down as collateral.
But not everyone wants to take on more debt.
So recently, companies like Point have sprung up to serve these homeowners by investing in home equity rather than lending against it.
In this arrangement — which is often referred to as home equity sharing — you don’t have monthly payments (among other benefits).
In this Point review, we’ll look at how the company stacks up against traditional debt products, as well as its competitors offering similar products.
Point invests in your home's future value, giving you cash up-front with no monthly payments. This can be cheaper or more expensive than alternatives — such as a traditional refinance or a HELOC — depending on your particular situation.
- Caps the amount you have to pay back.
- Offers 30-year contracts.
- Promotional pricing is available if using the funds for a renovation.
- Charges a premium for rental properties.
- Can be more expensive than other options if your home's value appreciates significantly.
Point Basics: How it Works
There are now a handful of companies in the home equity sharing space.
These companies engage in home equity sharing — a practice where a company provides a homeowner with funds up-front in exchange for a portion of the home’s change in value over time.
You don’t pay back the home equity sharing company monthly, as you would with traditional debt. Instead, funds are paid back at either the end of the term, when you sell your home, or — as is the case with Point — at any time during the term.
Editor’s note: Not all companies structure their contracts the same way. Some make you pay back the initial investment plus a percentage of your home’s appreciation, whereas others make you pay back a percentage of your home’s total value at the time the contract ends.
The math on sharing your home equity — with Point or any other company — isn’t as black and white as a HELOC or home equity loan.
Below we’ll look at how the arrangement works specifically with Point.
To understand the costs associated with selling a portion of your home’s future appreciation with Point, it’s best to go through an example.
Let’s say your home’s appraised market value is $500,000, and you’re looking to take out $50,000 — which would be a 10% equity stake in your home’s market value.
Point starts by applying a risk-adjusted value to your home, which is between 20-25%. This value is based on your risk profile, which takes into account factors such as your credit score, the amount of equity you have in your home and its location.
This risk adjusted rate lowers the upfront agreed upon value of your home. So, with a 20% risk adjusted rate, the starting point for your home’s value with Point would be $400.000.
During the underwriting process, Point provides you with a percentage of the home’s appreciation you’ll share going forward. To clarify, this is the appreciation over and above the risk-adjusted home value (which is $400,000 in our case).
For this example, let’s use a 30/70 split. This would mean Point gets 30% of the appreciated value over $400,000, while you would get 70%.
Now, assume that five years down the road, your home hasn’t changed in value.
If you’re looking to end the contract, you’d owe Point $80,000.
Here’s how we calculated this:
|Starting market value||$500,000|
|Cash received from Point||$50,000|
|Risk-adjusted home value (20%)||$400,000|
|Future home value (5 years)||$500,000|
|Appreciation based on risk-adjusted home value||$100,000|
|30% of appreciation||$30,000|
|Amount you owe Point (30% of appreciation + original stake)||$80,000|
We’ll get into more scenarios later on in the article, but for now, understand that this is how Point’s pricing works at its most basic level.
Costs and Fees
With Point, there are multiple factors that must be accounted for (some of which are unknown) to determine how advantageous the proposition is.
In the example above, there was a 0% change in home value over the course of five years.
Here’s how it would play out based on different average appreciations, a large decline in value, and a high appreciation rate over the course of five years.
As you can see, the more your home appreciates the higher the cost. Keeping in mind that you’re still benefitting as well, since your home is increasing in value.
Now let’s look at a very short-term time horizon in regards to your agreement with Point. What would happen if you decided to end the contract in one year?
What’s notable here is the range of outcomes.
With a large decline in value, your equivalent APR would be -11%. However, with high appreciation the APR would be equivalent to 22.3%.
On the other end of the spectrum, let’s look at a 25-year contract with Point:
Here, the range of outcomes is less varied. In the worst-case scenario, you’d be paying an equivalent APR of 9.5% over 30 years (and 0.4% in a best-case scenario).
Point also deducts a processing fee of 3-5%, as well as an appraisal fee, from your proceeds — and there are several other fees that you may pay if you request certain services.
- Administering owner events of default ($500-$3,500): The fees involved if you default on your obligation.
- Full appraisal ($500-$820): Depending on how you repay Point, you may need to pay for another appraisal.
- Payoff demand statement ($30): The amount charged for preparation of a payoff demand statement, which asks the company to provide specific terms for early buyout.
- Reconveyance service fee ($45): You pay this to cover Point’s costs of preparing documents that release it from its stake in your property.
- Subordination fee ($250): When someone requests Point to acknowledge in writing that they are junior to other parties with an interest (such as lenders) in the property.
- Title changes ($250): Fees incurred when title changes are made, such as when a homeowner is added or removed from the property.
Risk Adjustment Fee
Point uses a risk adjustment of 20% to 25% to determine the base value for your home’s appreciation.
In other words, they’ll subtract up to 25% of your home’s appraised value to arrive at what they call the “Original Agreed Value.” This number is what they use to calculate your proceeds.
For example, say Point offers to take a 10% stake in your home, and the third-party appraiser finds your home to be worth $500,000.
Now let’s say that Point applies a 20% risk adjustment, subtracting $100,000 from the appraised value to arrive at an Original Agreed Value of $400,000.
The Original Agreed Value doesn’t impact the amount you get from Point up-front.
The equity stake you sell, and therefore the cash you receive, is determined by the market value of your home based on a third-party appraisal.
What it does impact is the change in value your home has over time — which determines how much you’ll owe when repaying Point.
This is a fairly major difference between Point and other alternatives, because the risk adjustment offsets Point’s losses if your home decreases in value.
That said, Point also caps the repayment amount in exchange.
This cap is predetermined during the underwriting process, and would limit the amount you owe if your home significantly increased in value.
What About Renovations?
Other companies in the home equity sharing space require you to get an appraisal before and after a renovation, with the difference being excluded from the amount your home appreciates over time.
Point lets you remodel your home at any time without giving them notice, but the price change due to a renovation is not excluded from your agreement.
However, this is where it’s essential to know the predetermined repayment cap (referenced above) of your agreement.
This predetermined cap limits the upside and downside of an agreement. As such, part of the increase in value due to a renovation may end up being excluded after all.
Also, know that Point offers promotional pricing for homeowners who specifically intend to use the funds they receive for renovation.
This brings up a common scenario of remodeling to increase the value of one’s home, and therefore the amount of equity they owe. In turn, the homeowner can then refinance to a lower rate down the road and eliminate their agreement with Point.
If you sell your home, you must pay back Point. Otherwise, you don’t have to pay Point until the end of your 30-year term.
That said, you can repay Point at any time throughout your term, if you’d like to buy back their “share” of your property.
This opens up options such as pursuing a refinance to pay off the debt, once you’ve built up additional equity in your home.
Application and Eligibility
To qualify for Point, your home must be worth more than $200,000 and be located in an eligible state.
At the time of writing, Point is available in select cities in the following states (we update this list periodically to keep it accurate):
- District of Colombia
- New Jersey
- New York
- North Carolina
- Washington (state)
Additionally, you must have at least 30% equity in your home after Point’s investments (although the company requires more equity for some houses).
How Much You Can Get
Point offers you up to 22.5% of your home’s appraised value, with a minimum investment of $35,000 and a maximum of $350,000. The amount you receive depends on your home’s market value and your equity in it at the time of your Point application.
In any case, Point tells you how much they think you’ll qualify for after you fill out a short pre-application form on their website.
That said, they’ll get a third-party appraiser to determine the Appraised Value. From there, Point will add the risk adjustment to arrive at your Original Agreed Value — the figure they’ll use to determine your proceeds.
Point Pros and Cons
Let’s look at the benefits and drawbacks of using Point.
- No monthly payment. Point gives you access to cash without worrying about monthly debt payments.
- 30-year term. Point’s 30-year term is longer than the 10-year term offered by two of its main competitors, Hometap and Noah.
- Fast application and funding. It takes two minutes to apply and see how much you’re prequalified for. Homeowners with relatively simple properties can receive funding in as little as 15 days if they move forward.
- Predetermined cap. Point caps their upside, so if your home appreciates past a certain predetermined value, your costs are capped.
- Promotional pricing for home renovations. Point can offer better terms for homeowners who are renovating.
- Rental premium. If you rent out your home during your Point term, Point charges you a rental premium. This is about 10% of their share of your home’s appreciation.
- Forced sale risk. Point can force you to sell your home at the end of the term if you can’t pay back their investment plus appreciation. Keep in mind that there’s a 30-year term before the forced sale, so options such as a reverse mortgage based on the equity you’ve built up over 30 years would be applicable here if you want to stay in your house at that point.
Point Competitors and Alternatives
Comparing home equity sharing companies is a difficult task.
There is no standard home equity sharing contract. Companies in the space are widely different in terms of what they offer, and therefore the best one for you depends on your unique situation.
Furthermore, some of the vital information you need to compare Point against its competitors isn’t provided until you’ve applied (specifically, the risk-adjusted home value, the predetermined cap, and Point’s share of the appreciation).
That said, a major difference worth highlighting is that point offers a lengthy 30-year term. Few others in this space offer such a long term. Hometap, for example, has a max contract duration of just 10 years.
Here are some highlights regarding Point’s competitors:
- Hometap. Offers a max contract of 10 years, a max loan-to-value of 75%, and a minimum of 600 credit score is needed to qualify. Available in only 12 states.
- Noah. Noah’s minimum property value requirement is much higher than Point’s at $300,000. Additionally, Noah’s term length is only 10 years. Still, you can obtain up to $350,000, and its maximum loan-to-value requirement is 85%.
- Unison. Unison also offers 30-year terms and bumps the maximum amount you can get up to $500,000. However, you can only receive up to 17.5% of your home’s value in proceeds. They cap the amount of cash you can receive at $500,000, but you can only receive up to 17.5% of your home’s value.
Here are some of the most common questions we’re asked about Point. If you’re wondering about something that wasn’t covered in this article, just leave us a comment below and we’ll work on getting the answer!
Yes, but due to the additional risks associated with these types of properties, Point has stricter underwriting criteria and charges a premium.
We reached out to Point to ask about this. The company told us that it works with homeowners to help them avoid foreclosure if possible. However, they also said that if a home enters foreclosure, they have an interest in the property.
It’s worth noting that in that situation, Point is second in line to your lenders, as debt-holders have the first claim on homes.
Point Review: Is It Right For You?
Home equity sharing companies like Point offer homeowners a method of bolstering their finances without taking on a monthly payment.
In the examples above, we listed the equivalent APRs you’d get if you entered an agreement with Point. These ranged from -11% to 22.3%.
In other words, there’s a wide range of outcomes, although that range narrows the longer you stay in your Point contract.
For comparison’s sake, someone with a high credit score and a stable income who has built up equity in their home can get a home equity line of credit for around 6%. So, when you compare an agreement with Point to a traditional home equity loan, the latter loan will likely win out.
But not everyone will qualify for such favorable loan terms — which is why home equity sharing is popular among those who are strapped for cash and have equity in their homes.
The big question is this: What will you do with the money you receive from Point?
Say a home equity sharing agreement allows you to pay off a crippling amount of high-interest credit card debt, which then allows you to fully take advantage of your employer’s 401(K) match. In situations like this, it’s easy to make the case that you’ll come out far ahead.
Another scenario is a home equity share agreement that allows you to renovate a home, either reselling it for a much higher value than you could have in the short-term or refinancing to a much lower rate. Again, the math can easily work in your favor here.
What’s important for you is to run the numbers and have a plan with regards to what to use the money for.