Before you sign a home-equity sharing agreement: 7 numbers to calculate

A home-equity agreement may promise cash with no monthly payment and no traditional interest charge. That does not mean the money is cheap.

Before signing, ask the company to put these seven numbers in writing:

1. How much cash will you actually receive?
Start with the advertised advance, then subtract origination fees, appraisal charges, closing costs and any debts the company requires you to pay off.

2. What percentage of your home’s future value or appreciation are you giving up?
Do not rely on phrases such as “shared appreciation.” Ask for the exact formula.

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3. What home value will the company use as its starting point?
Some agreements apply a discount or adjustment to the home's appraised value. That can substantially increase the company's share of future appreciation.

4. What would you owe if home prices rise 3%, 5% or 8% a year?
Ask for written payoff examples after five, 10 and 15 years. A relatively modest annual increase can produce a very large settlement amount over time.

5. What would it cost to buy the company out without selling your house?
This may be especially important for older homeowners who want to remain in their homes or eventually leave them to family members.

6. What happens if you refinance?
A home-equity agreement may complicate a future mortgage or HELOC because the company generally records an interest or lien against the property. Ask whether refinancing requires the agreement to be paid off.

7. What is the maximum amount you could owe?
Some contracts include caps or limits; others may expose homeowners to much larger payments as property values rise. Get the exact maximum — if there is one.

Then compare it with ordinary borrowing

Before giving up a share of your home equity, get quotes for a:

• Home-equity loan
• Home-equity line of credit
• Cash-out refinance
• Reverse mortgage, if you are eligible

A traditional loan comes with interest and monthly payments, but its costs may be considerably easier to understand and predict.

Bottom line: Don't compare a home-equity agreement based on the monthly payment — which may be zero. Compare what you could ultimately have to pay to get your house back free and clear.