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.
- No income requirement.
- 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 15-25%. 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 say you received $50,000 of cash upfront, in which Point agrees to 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 benefiting 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%.
Of course, you still own a significant amount of equity in your home. So, while a decrease in value might be beneficial to your agreement with Point, you’re far off better overall when your home rises in value.
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 typically 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 major difference between Point and other alternatives, because the risk adjustment offsets Point’s losses if your home decreases in value.
That said, Point caps the repayment amount if you’re going to exit within the first two years.
This cap is predetermined during the underwriting process, and would limit the amount you owe if your home significantly increased in value within two years.
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.
This brings up a common scenario of remodeling to increase the value of one’s home, and therefore the amount of equity they own. In turn, the homeowner can refinance to a lower rate to eliminate their agreement with Point. Keep in mind, however, that caps typically expire after two years, so you’ll want to make sure you’ll be in a position to refinance (or even sell at a higher cost) within this timeframe.
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.
Point allows for both owner or non-owned occupied homes. In addition, residential real estate up to four units.
Their minimum credit score is 500.
There are no requirements for income or liquid assets.
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 20% of your home’s appraised value, with a minimum investment of $35,000 and a maximum of $500,000. 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 typically 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 its main competitor, Hometap.
- 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.
Learn more about the benefits and drawbacks in our guide to the pros and cons of home equity sharing agreements.
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.
- 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.
- Unlock. Terms have a maximum duration of 10 years, and the required credit score is just 500. Unlock is unique in that it allows partial buyback of your agreement prior to the end of the term.
Learn more in our roundup of the best home equity sharing companies.
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.
Thank you. Your explanation is great.
A lot of great information. Now it’s decision time. Thank you so much.
Thank you for doing a great job of explaining the EQ share system. You rock!
Very informative article. What would be the tax implications of funds received from a shared equity agreement ? Thanks.
It depends on your individual situation (size of capital gain, primary residence, how long you have lived in the home), but as a general rule of thumb, home equity sharing agreements are designed to be tax-deferred. Meaning you’re most likely dealing with the tax consequences you outright sell the home.
Will Point be on the title of my property? In the estimate I received, there is a charge for title and escrow so I wanted to make sure.
Point isn’t added to the title on your property. They’re technically a lienholder on the property, instead.
The answer is “Yes” they are added to the title. My application is currently in underwriting and that’s one reason why I’m hesitant to move forward.
Interesting. According to their FAQ, “Point is not added to the title of the property. You will retain sole ownership of your home with Point as an investor. Similar to a mortgage, Point’s investment is secured by a Security Instrument. In other words, we would become a lienholder on the property.”
Can you confirm that’s what you’re seeing?
Can you pay off the amount loaned early….Is it reappraised at the time of payoff? Also is the only option to payoff in full not monthly payments?
You can pay off Point at any time during the agreement. An appraisal is then done at the time of payoff.
There’s no option to pay off in monthly payments to Point. You could however consider getting a home equity line to payoff Point and making monthly payments on that.
Please keep in mind it takes a point a long time to send you your money. Even when all the paper work is done, they will delay your closing for months to budget out their customers payouts. Expect to wait a minimum of 3-4 months to get your money.
Thanks for the comment. I got an update from Point. They mentioned it takes about 90 days from the initial application to funding. They’re seeing some high growth with the increase in housing prices.
Can I refi my house in this program with point?
Yes, but you’ll have to pay off Point in the process.