For most people, and likely for you as well, buying your home was a huge investment and probably the biggest purchase you’ll ever make. In fact, so many Americans see value in home ownership that residential real estate now represents the largest aspect of personal net worth nationwide. Yet, nearly half of all home owners say that paying their mortgage payments every month creates financial strain.
Enter PRIMARQ. Through a co-ownership marketplace in which you can sell part of the equity in your home to an accredited investor, PRIMARQ allows you to access that equity rather than taking out a line of credit or loan that you’d have to pay back later. Instead, these investors buy equity that you can use to pay for value-adding home improvements, education costs, health care expenses or anything you’d like.
Advantages of co-ownership to you as a home owner include:- Asset diversification. Reducing your stake in a single investment - your home - will allow you to diversify your assets. For example, rather than having 95% of your net worth in a single asset class, and more specifically, one asset, it may make sense to diversify out of the home and into, say, your 401(k). As with a stock portfolio, you don’t invest all your money in a single stock - so why should your single biggest financial asset be any different?
- Debt avoidance. If you were to access equity through your bank, you’d be forced to take out a loan against that equity - pushing you even further into debt. Further, such equity loan debt requires it to be paid off upon the sale before you see your residual equity. By having a co-owner, they would share in the market returns of the equity alongside you, thus enjoying the upside of price appreciation, but also bearing the risk of price diminution. Lenders do not share in either the upside nor downside, receiving their return solely from interest and having a priority claim upon sale.
- Early mortgage payoff. You can use the additional equity you sell to help pay down (or off) your mortgage, getting you out of debt faster, eliminating ongoing payments, and helping you avoid future re-set rates, depending on the terms of your original loan.
The investor is a passive co-owner, meaning they will never enter your property without sufficient notice and your consent. The investor’s interest is always to increase the value of your property for mutual benefit, so they will have a say in any decisions that could change the home’s value based on the type of additional financing that is required, either new equity or borrowing against the home. If incremental equity is used, it may come from both you and your investor. If you are looking to borrow against the home for the improvements, which will impact the level of debt on the property, your investor must agree to that. Ultimately, as co-owners, you both will have a say in significant home improvements.
As a home owner, you are free to sell your home whenever you’d like - working with your investor to agree on a final price. Once sold, you and your investor remove your respective down payment funds (and any additional contributions made subject to mutual consent) and share the residual equity value according to the original agreement.
You are also free to “buy out” your investor at any point so that the home becomes solely your own once again. In addition, if your financial situation changes - such as you lose your job - the investor has the option of stepping in to aid with your mortgage payments in exchange for an increased share of the home’s equity, decreasing your risk of foreclosure. You will always remain the home’s primary owner-occupant, and as part of the agreement, and you must some minimum level of equity in the home at all times.
And do recognize that the PRIMARQ Agreement is NOT a loan, mortgage, reverse mortgage or any form of indebtedness. There is no incremental lien on the property, as the investor is a co-owner, and his stake is reflected on the title of the property. His returns are based solely on the appreciation of the property. Alternatively, he is also subject to the decline in value, as you are too.
Equity sharing is not a new model - it has been utilized for decades in the United Kingdom and Europe. In the U.S., we have long been conditioned to using excessive mortgage debt to acquire or maintain home ownership, and have recently witnessed the consequences of over leveraging. PRIMARQ believes the housing problems that have come to light in the United States make clear that new approaches are needed, and that our private market system will enable more affordable and sustainable homeownership.
| PRIMARQ | Home Equity Loan | Reverse Mortgage | |
| Description | Equity sharing agreement, where multiple parties coinvest equity funds and share ownership. | This is not a loan against the value of the property An interest bearing loan against the value of your home. Generally, the loan is secured with a deed of trust.. | An interest bearing loan against the value of your home. Loan advances are made against the existing value of your equity. |
| Maximum Funding | Up to 50% of your home’s equity value, net of the mortgage debt. | Generally limited to 80-90% of the value of the property, while including all mortgage debt. | Generally limited to a percentage of the value of the home and the desired payment outlay program |
| Monthly Payments | No. | Yes. | No. |
| Is This Debt? | No. | Yes. | Yes. Interest accrues even though you are not making monthly payments.No. |
| Interest Rate | None. | Based on current financial index, the borrower’s credit score, home value, and amount borrowed. May be a fixed or variable rate. | Based on current financial index. |
| Tax Implications | In selling all or a portion of your property, you are subject to the home owner exclusion limitation of $250,000 or $500,000 based on tax filing, before taxes are applied. | In most cases, borrowers can deduct interest on loans up to $100,000. There is no tax on the receipt of funds | Interest is not deductible until the loan is paid off in part or whole. There is no tax on the receipt of funds |
| Is There A Minimum Age Requirement? | No. | No. | Yes. Home owner must be 62 or older. |
| Income Qualifications | None. But PRIMARQ does review the home owner’s financial ability to service the mortgage obligation if any. | Debt to income ratio can determine approval and influence the interest rate | You defer interest payments, so you don’t need a minimum amount of income to qualify. |
| Can Money Be Used for Any Purpose? | Yes. | Yes. | Yes. |
| What Happens If the Home Value Declines? | Both you and investor share in the decline in value | Does not reduce the amount you owe. Lender has priority position so that upon sale, it receives full principal before you receive any equity proceeds. | Does not reduce the amount you owe. Lender has priority position so that upon sale, it receives full principal before you receive any equity proceeds. |
| Term | Up to 50 years in most states | 5 - 10 year draw period followed by 10 - 20 year repayment period. | Until you sell or leave your home, or the owner passes away. |