Equity Access - Homeowner Introduction

The NestWorth Equity Access Agreement

Download the full pdf version | Equity Access Agreement presentation | Video Featuring Maggie and Rob Black

Transaction Description
When a homeowner enters into an Equity Access Agreement, NestWorth agrees to make monthly payments to them foras long as twenty five years or as few as ten. The homeowner selects the payment term; shorter terms enable larger payments. In exchange, the homeowner grants NestWorth the right to receive a share of the proceeds from the sale of their home. The home may be sold by the owner at any time or by NestWorth if the homeowners move out during the term of the agreement, or when the last homeowner passes away.

Highlights

• Homeowners receive substantial monthly payments that they may use as they choose.
• Homeowners continue to own their home until they sell it.
• Eligible existing mortgages do not need to be paid off
• The owner may terminate the agreement at any time.
• Homeowner only pays a $500 upfront deposit to cover the Appraisal cost - this is refunded once the Agreement records.

Eligibility

• The youngest Homeowner must be at least 60 years old.
• The home must be occupied as a primary residence
  
• The home must be a 1‐4 unit, single family dwelling. Condominiums are eligible.
  
• The home must be typical for the area.
  
• Title must be held by a natural person or inter vivos trust
  
• The home must be located in an eligible NestWorth geographic area

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Monthly Payments
The owner may elect to receive monthly payments from between 10 to 25 years. The number of payments selected will determine the amount of each payment and the total of all payments.

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Termination
Generally, an Equity Access Agreement ends when an owner sells the home, or the last owner passes away and NestWorth sells the home. The Agreement is not terminated when the last payment is sent to the owner.

An Agreement can also end if the owner moves out of the home during the term of the agreement, declares bankruptcy, upon the appointment of a conservator or receiver of any owner, if a lender commences foreclosure or if the owner otherwise breaches the Agreement.

The Agreement can also end if the property is destroyed or condemned. NestWorth can also terminate the Agreement at any time by notice to the owner. If NestWorth terminates unilaterally it does so without recourse to the owner and loses all rights to any interest in the property. The owner keeps all payments previously received without any obligation to NestWorth. The owner has a right to terminate the Agreement at any time by paying NestWorth.

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The NestWorth Share

As consideration for making payments to the owner, NestWorth receives a share in the home’sales proceeds. This is the NestWorth Share.The NestWorth Share is specified in the Equity Access Agreement. For example, at the date of this writing, these are the beginning NestWorth Shares for each of these payment options.

Note: All examples are for a single 75 year-old male

Number of payments	Monthly Payment	Total Scheduled Payments	Beginning NestWorth Share
120	$4,448	$533,600	$740,000
180	$3,300	$594,000	$740,000
240	$2,640	$633,600	$740,000
300	$2,260	$678,000	$740,000

The NestWorth Share may increase and depends upon the increase in a defined home price index for the area in which the home is located. Home price indexes track the movement of average home prices much like the Dow Jones Index tracks the average value of companies in the index. The NestWorth Share cannot decrease.

The NestWorth Share will be equal to the greater of the beginning NestWorth Share or the beginning NestWorth share multiplied by the sum of one plus the change in the home price index.

For example, if the home price increased by 10% during the term of the Equity Access Agreement then the effective NestWorth Share will be equal to the beginning NestWorth Share multiplied by 1+10%. For example, a $740,000 beginning NestWorth Share and a 10% increase in the home price index would mean a NestWorth Share of $814,000 when the home is sold.

Here are some examples of NestWorth Share assuming a 10% increase in the home price index.

Number of payments	Monthly Payment	Total Scheduled Payments	Beginning NestWorth Share	NestWorth Share
120	$4,448	$533,600	$740,000	$814,000
180	$3,330	$594,000	$740,000	$814,000
240	$2,640	$633,600	$740,000	$814,000
300	$2,260	$678,000	$740,000	$814,000

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Unpaid Consideration
If the Equity Access Agreement terminates before all scheduled monthly payments have been
made, the remaining payments due the homeowner is called the Unpaid Consideration.

If a termination occurs before all scheduled Equity Access payments have been made to the owner, then NestWorth's proceeds from sale will be reduced by the amount of the unpaid consideration. The result is the amount that NestWorth receives from the sale of the home.

The NestWorth Share ‐Unpaid Consideration =NestWorth Proceeds

Here are examples of unpaid consideration when Agreements terminate after 180 months:

Number of payments	Monthly Payment	Total Scheduled Payments	Unpaid Consideration
120	$4,448	$533,600	$0
180>	$3,330	$594,000	$0
240	$2,640	$633,600	$158,400
300>	$2,260	$678,000	$271,200

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Sales Proceeds
The order of proceeds from sale is as follows when the home is sold:

1. To lender(s): Remaining mortgage balances
   
2. To vendors involved in the sale e.g. realtors: The cost of sale
   
3. To NestWorth: The NestWorth Share minus unpaid consideration
   
4. Any Advances NestWorth has made to protect its share e.g. property taxes not paid by the owner
   
5. The owner receives all remaining proceeds

Here is an example of an owner that elected 240 scheduled payments of $2,640 each and a NestWorth share of $740,000. He sold his home after 15 years and received monthly Equity Access payments of $475,200. The change in the home price index was plus 10% so NestWorth’s share at the time of sale was $814,000. Unpaid consideration was $158,400.

*Note: In this example, the percentage change in the home’s value was the same as the index change. If the owner had improved the value of his home by say, adding a room and selling the home for more, then the value added could have accrued to him. To the extent that he deferred maintenance, the home lost value and he sold it for less, which cost could also have accrued to him.

This owner’s home value could have performed better or worse than the index for reasons that he could not control and this would affect his net proceeds.

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The Cost of Equity Access
For the owner, the cost of an Equity Access Agreement is the difference between the payments received and the NestWorth proceeds from the sale of the home. In the above example the owner received $633,700 and NestWorth’s sales proceeds were $814,000 ($814,000 minus $633,700). The difference between the amount of money that he received and the amount that NestWorth received was $180,300.

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Annual Equity Access Cost -Important Concept
To understand Annual Equity Access Cost, it helps to consider a loan that generates the same cash flows. In both cases access to money has a cost. Assume a borrower draws $3,750 monthly from a line of credit for fifteen years for a total of $675,000. Also assume he is not required to make any payments until the end of the fifteen year term. If he were then required to pay the bank $835,512 his cash flow would be the same as the Equity Access example in Section 9 above. In this case the difference between the amounts he received and the amount he repays is the interest charge $160,000. The interest rate that generates this charge is 2.76%.
The annual Equity Access cost can be thought of in the same way.

Note: while lenders are guaranteed their interest payments, NestWorth’s returns are at risk for home value change. Equity Access Agreements are not loans.

The Cost of Equity Access depends on changes in the home price index. The greater the increase in home values in your area, the higher your Equity Access cost will be. Here are other examples of the Equity Access cost for the twenty year transaction terminating on its 15th anniversary. The table demonstrates the Annual Equity Access Cost for different average annual home price index changes.

 

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The Cost of Equity Access increases when the term of the Agreement decreases.

Assume that an owner enters into a NestWorth Agreement with a twenty year payment term and payments of $2,640 per month. He sells the home in ten years. To keep the example simple, we have assumed that the home price index is unchanged and his annual cost is 5.59%

The Cost of Equity Access

If this same owner sold his home in seven years then the total cost of Equity Access would remain the same but his Annual Equity Access cost would be 10.71%.

The Cost of Equity Access

An Equity Access Agreement can be relatively expensive for owners that sell their homes soon after they enter into an Agreement.

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The Homeowner’s Mortgage
Homeowners do not need to pay off their existing eligible mortgage when they obtain an Equity Access Agreement. Homeowners will continue making direct principal and interest payments on their mortgages as scheduled. NestWorth will subordinate the Equity Access Agreement to any new first or second mortgage that meets the debt limits established at the beginning of the agreement.

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Home Ownership
Homeowners are responsible for paying the property taxes, association dues and Homeowners insurance premiums. If the homeowner fails to make these payments, then NestWorth will make them. If NestWorth makes any payments on the Homeowner’s behalf, NestWorth will reduce the monthly payment by these amounts until they have recaptured those advances.

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What are the geographic areas that qualify?
California: San Francisco Bay Area; Southern California the following counties are eligible San Diego, Santa Barbara, Orange, Ventura and parts of Riverside and Los Angles County.
Washington: Counties: King, Pierce, Kitsap, Snohomish, Island, Skagit, Skamania, Cark & Spokane
Oregon: Counties: Multnomah, Clackamas, Hood River, Washington, Deschutes, Jackson & Yamhill

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If you have more questions or you want a further explanation, feel free to contact Maggie or call 800-684-9438.