Released: September 13, 2008

These home equity loans come with big risks

Source: Kenneth R. Harney, Washington Post (Free Registration)

When an investor offers you $50,000 or $100,000 in exchange for 30 percent to 50 percent of your home’s future appreciation, is it a good deal?

That’s what some investment firms are promoting as an alternative to traditional home equity loans, lines of credit and reverse mortgages. The companies argue that sharing future increases in value is a superior way to convert current equity into spendable money now because there are no monthly payments or interest charges, fees are comparatively low, and investors agree to participate in losses in a home’s value as well as in gains.

Two of the investment companies - REX and Grander Financial - are specifically targeting homeowners in their 50s and younger, who are ineligible for reverse mortgage programs, which are restricted to individuals 62 and older.

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