In August, I warned readers of the dangers of participating in REX agreements and similar equity sharing programs. Basically, these new lenders will give you cash upfront for a share of your home’s appreciating equity. It can be a tempting prospect, but it is an easy way to lose a lot of money a few years from now.

Just this week, the Seattle Times highlighted the REX agreement as their “stupid investment of the week.” They explain:

“The one thing that is most clear about a REX agreement is that it’s a huge bet on the appreciation of your home, and that it looks like a sweet deal, but it has a lot of sour potential. Worse yet, it’s almost impossible to tell who these deals will actually work out for, and who is finding a new way to mortgage their financial future.

But because they appeal to the consumer’s most basic desires — cash now, no payments, no interest rate to worry about — REX agreements are something that a consumer can easily bungle, even under the best of market conditions.”

Taking out a traditional home equity line of credit does require the borrower to begin making monthly payments immediately. However, it also allows borrowers to keep the full share of any appreciation in their home. The REX agreement takes away this possibility.

See Also:

HELOC Borrowers - Beware of the REX Agreement

Shared Equity Loans

Tags | Heloc, Rex Agreement, shared equity loans