15th Sep, 2008

Equitykey Frequently Asked Questions

 Equity Options USA (877) 777-4727

 Equitykey Frequently Asked Questions



Who is EquityKey?

EquityKey is a new kind of real estate investment company that helps people 65 to 85 unlock the wealth in their homes. EquityKey offers qualified homeowners a real estate option, which pays cash today in exchange for a share of the future appreciation of their property. The EquityKey option is not a loan. There are no monthly payments or interest charges. Clients keep their existing equity, and EquityKey takes the risk, betting that the money it pays to clients today will be recouped through future long-term growth in property values. By taking this risk EquityKey essentially allows clients to exchange the possibility of appreciation in the future for the certainty of cash today.

How did this start?

The EquityKey real estate option was created in 2005 by a group of certified financial planners whose inspiration came from their own clients. Many of those clients had significant assets tied up in rapidly appreciating real estate, and wanted a better way to access those assets.
The result was the EquityKey real estate option—a new way to access property values without loans, monthly payments or interest charges. Instead of taking existing equity out of a property, EquityKey focuses on the property’s potential future value. With this patent-pending approach, everybody wins—property owners receive cash today, and EquityKey shares in the growth of tomorrow.
Today, EquityKey is backed by KBC Bank, one of the largest financial institutions in Europe. The EquityKey option is available through certified real estate brokers in several states.

Tell me more about the bank.

In October of 2006, EquityKey was purchased by KBC Financial Products, a U.S. unit of the $500 billion* KBC Banking Group. With 11 million customers in 30 countries and more than 51,000 employees, KBC caters mainly to retail and private banking customers.

Why would I do this?

By taking advantage of the EquityKey real estate option, homeowners can access cash without going into debt through a loan or tapping into existing equity. You can use the EquityKey option as a tool to either meet short-term needs or for the purpose of longer-term estate planning.

How can I use the money?

You can put the money you receive to work in a variety of ways today, like diversifying your investment portfolio, retiring debt, funding a grandchild’s education, or making charitable contributions that you can witness and enjoy during your active years. The choices are endless.

How does it work?

EquityKey is making an investment in your property. In exchange for an upfront payment, EquityKey receives the right to buy the property at a later date, which is why this is known as an “option.” Through the option, EquityKey shares with you any appreciation. If one homeowner qualifies, EquityKey typically pays 10% to15% of the current value of the property. If the property has increased in value when EquityKey exercises the option and purchases the property, the increase in value is equally divided between you and EquityKey.

What if there are two qualified homeowners?

If there are two qualified homeowners, and you both wish to participate, together you could typically receive 20% to 30% of the property’s current value. In exchange, EquityKey will receive 100% of the future appreciation. You still keep all of your existing equity—EquityKey’s only interest is the future growth in property value, if any, from the time the option is purchased.

What’s in it for EquityKey?

EquityKey believes its real estate option fosters a win-win relationship. Because EquityKey focuses on long-term value, it expects properties will appreciate more often than not. At the same time, many clients are less interested in long-term gains than short-term goals. They would rather see a return on their investment today, so they can put the money to work in other ways. In this sense, EquityKey truly is your partner in appreciation.

How are home values determined?

EquityKey pays for the cost of two appraisals. The two appraisals are averaged together to determine the home’s initial appraised value. If you don’t agree with the appraised value, you have the right to pay for a third appraisal. The average of the two highest appraisals will be used to establish the initial value of the home. The same process is used to determine the value of the home at the end of the transaction, except you pay for the appraisals. These final appraisals are part of the acquisition cost if the property is purchased by EquityKey.

What kind of property qualifies?

Primary residences, second homes, and commercial properties can all qualify. Homes must meet or exceed minimum value requirements, which are specific to each state. Homes cannot have a loan-to-value ratio greater than 80% when one owner participates, or 70% if two participate.

How do I qualify for the EquityKey option?

To qualify for the EquityKey real estate option, you must be between 65 and 85 years old, and satisfy health standards required by life insurance carriers.

Why are there health requirements?

EquityKey buys a life insurance policy on the homeowner as part of every transaction. One of the critical insurance company underwriting requirements is the health of the insured. Therefore, in order to qualify, you must satisfy health standards of the insurance company.

Why does EquityKey purchase life insurance?

EquityKey is making a long-term real estate investment. It’s designed to last a homeowner’s lifetime. If a client unexpectedly passes away shortly after entering into a transaction, the property will not have had time to appreciate, and the option will expire. To guard against this risk, EquityKey buys a life insurance policy to cover its potential loss in the event of an unexpected death. Additionally, the life insurance policy gives EquityKey the necessary funds to buy the home when the owner passes away, ensuring a smooth estate settlement process. In that sense, the EquityKey option not only gives homeowners the financial freedom to make the most of their active years—it also eliminates uncertainties about what will happen after their passing. EquityKey pays 100% of the costs associated with these insurance policies. Homeowners don’t pay anything for the policy, and the proceeds of the policy are paid to EquityKey.

What are some of my requirements?

Because the EquityKey real estate option is an investment in your home, you must continue to care for the property. This includes maintaining the condition of the home, making mortgage and property tax payments on time, keeping the home insured at its full replacement value, and other responsibilities as detailed in the agreement.

How long does it take to qualify?

A typical transaction takes 90 to120 days to complete. It usually takes around 30 days to gather medical information from clients and obtain medical records. Once this step is complete, it takes about 30 more days to complete medical and financial underwriting, including property appraisals. In the last 30 days or so, EquityKey obtains coverage from the insurance carriers, finalizes the agreement and funds the client, who typically receives 10% to 15% of their appraised home value.

What are the closing costs?

Unlike a reverse mortgage or other home loan, which can have hefty origination and closing costs, the EquityKey option has a one-time-only $300 application fee. The entire fee is refunded if for some reason you don’t qualify, or when your transaction is funded.

Are there other costs?

There can be other costs associated with the EquityKey option. For example, if you decide to move without transferring the option to a new property, an early termination charge may apply. The amount of the early termination charge is detailed in the EquityKey option agreement. After 10 years, there is no early termination charge.
At the time the option is exercised and the property is purchased, EquityKey withholds an acquisition cost, which is similar to the fee any broker would charge to sell your home. This cost—which is capped at 8% of the property’s final, appraised value—covers such expenses as hiring a real estate agent and listing the home. Once the property is sold, EquityKey will reimburse the difference between the amount withheld and the actual cost of selling the home.
As with any transaction, it is important to read and understand the contract. EquityKey encourages you to review the real estate option agreement with your advisors to make sure all costs and terms are completely understood. We also encourage you to include family members in your decision, so the transaction is understood by everyone involved.

Can I refinance?

You can refinance existing loans, or even take out new loans on the property, though new loans must be approved by EquityKey. All approved loans must have a combined loan value that is less than 80% of your share of the home’s value.

Can I move?

There’s no requirement that you live in the property. As long as you maintain ownership and the condition of the property, you can have another primary address, rent out the property, do whatever you want—and continue to share the appreciation with EquityKey until you sell or pass away.

What if I want to sell the home?

The EquityKey option is intended to be a lifetime option. However, if you want to sell your home, you can ask EquityKey to transfer the option to the new property. This is subject to EquityKey’s approval, and a new agreement with new terms will be needed. But if you are looking to move, you can take the EquityKey option with you.

What if I can’t transfer the option?

If the option can’t be transferred—for example, if the new property is not eligible under EquityKey’s guidelines—you can still sell your home. EquityKey has the first right to purchase the property. If the sale occurs within the first 10 years of the transaction, an early termination charge will also apply.

What happens if I pass away?

If the qualified EquityKey client passes away, the surviving homeowner has three choices. They can continue to own the property and share the appreciation with EquityKey. They can offer EquityKey the right to acquire the property. Or they can choose to pay EquityKey its share of the appreciation, and terminate the agreement. Upon payment, EquityKey will release any interest it has in the property.

Does EquityKey always purchase the property?

In most cases, EquityKey will be the purchaser of the home upon the client’s death or decision to sell. In some cases, specifically very depressed real estate markets, EquityKey may choose not to exercise our option to purchase the property, and the agreement will end.

What if my family wants the home?

If your heirs or estate wish to keep the property in the family, they can do so by paying EquityKey the amount it is entitled to under the agreement.

* As of September 2008.




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