How Hometap's Home Equity Investment Pricing Model Works

Home equity investments (HEIs) are still a fairly new — and often-misunderstood — home financing option, so if you’re exploring this solution, it’s important to understand how the pricing works.

An HEI (also referred to as a home equity agreement) is a financial product that allows a homeowner to access a portion of their home equity in cash in exchange for a percentage of the home’s future value. Homeowners receive a lump sum from the investor and don’t make monthly payments on the investment.

While the specifics can vary by company, there are generally two types of pricing models used by home equity investors: the share of home value model and the share of appreciation model. Below, we’ll cover the basics of each model, the differences between them, and some common questions you might have about HEI pricing.

Share of Appreciation Model

With the share of appreciation model, the originator (HEI company) provides the homeowner with a lump sum of cash in exchange for a percentage of the home’s future appreciation amount. At the end of the investment term, the homeowner pays the original investment amount, plus a variable percent of the home’s appreciation, to the company.

Share of Home Value Model

The share of home value model, which we use here at Hometap, means that we provide the homeowner with a lump sum of cash in exchange for a share of the future value of their home. When the Investment’s term ends, or when the homeowner decides to repurchase the share or sell their home, the homeowner pays an agreed-upon percentage of the home’s market value at the time of settlement to us.

Hometap’s Tiered Pricing

Within the share of home value model, Hometap uses a simple “X-for-Y” tiered pricing structure. This means that the upfront lump sum of cash we provide to the homeowner is equal to X% of their current home value, and in exchange, we earn a Y% minority stake in the future value of their home. This differs a bit from the traditional “X-for-X” investment model — like what you might see on a show like Shark Tank — in which the investor provides an upfront investment percentage and receives that same percentage back in the future.

See the image below for some examples of this tiered pricing.

Note: the percentages above are proportional examples only, and each homeowner’s investment percentage — and Hometap’s share — will vary to match these ratios, depending on how much equity is initially accessed. In the example above, which represents a homeowner who taps into 10% of their equity, the Hometap Share would be 15% for 0-3 years. If the homeowner tapped into 15% of their equity instead, the Hometap Share would be 22.5% for years 0-3, and so on. The maximum percentage of equity a homeowner can access is 24.99%.