If you have a Home Equity Investment (HEI) from Point, you know firsthand how beneficial it can be in helping you afford a better life. To make sure it’s as smooth and stress-free on the other end, it’s a good idea to have a plan in place for how to repay your HEI when the time comes.
At Point, your HEI may not need to be repaid for another 30 years. This gives you plenty of time to consider your options. There are many ways you can pay back your HEI, some of which may be better suited for you than others. We’ll cover each of them to help you select the best option1.
Is it the right time to pay back your HEI?
You can pay back your HEI at any time during your 30-year term2, without any penalty. Many homeowners choose to pay their Point HEI back relatively quickly, by refinancing or selling their home. If you pay back your HEI sooner rather than later, your home’s value won’t have had as much time to grow. That means your total payoff amount may be smaller as well.
Many homeowners use HEIs as a bridge to consolidate debt. You could use the funds from your HEI to pay off high-interest credit cards, for example, which can help grow your credit score enough that you’re able to take advantage of better financing offers. You could then use those financing options to pay off your HEI and retain full equity in your home, including its appreciation.
Finally, homeowners also use HEIs to spruce up their home to attract a buyer if they’re planning on selling it in the near future, for example. This can help you complete any repairs or overdue maintenance items, or add modern, marketable touches to your home.
If you plan on keeping your home, however, you may have more flexibility in how — and when — you pay back your HEI. Here are some points to consider:
Assess your financial stability
Some of the options to pay back your HEI involve taking on debt, such as by applying for a cash-out refinance or a home equity loan. These options require regular monthly payments, unlike when you partner with Point.
It’s a good idea to take a look at your budget any time you take on new debt. List out all of your sources of income, and consider how stable you think they’ll be during the period of time you’ll be repaying the debt. Having a consistent income can help ensure you’re able to afford the monthly payments going forward with ease.
Another consideration is your savings. You may be able to take out a smaller loan if you can pay back a portion of your HEI in cash with your existing savings. Make sure you keep enough in savings to pay for emergencies and other contingencies, however, so you can still sleep easy at night without worrying about financial curveballs.
Finally, consider your credit. If you have a good or excellent credit score (670 or higher, according to FICO), you may receive more favorable terms on a loan. That can make your monthly payments easier to afford as well. If you don’t currently have good credit, there are many things you can do to build your credit score.
Consider market conditions and home value
An HEI from Point works by offering you cash upfront in exchange for a portion of the future appreciation in your home. That means your home’s current value determines the amount you’ll have to repay. Home values can fluctuate over time, as you’re well aware, and it’s a good idea to take this into account when you’re considering if it’s a good time to pay back your HEI.
Point’s team will email you a new statement each quarter listing your estimated payoff amount. You can also get an updated payoff estimate at any time by contacting customer service. You can consider your payoff estimate in light of current real estate trends to decide if now’s a good time to pay off your HEI, or if it might be better to wait when conditions are more advantageous to you.
For example, if you think the housing market is currently in a bubble, you may have to pay less back later if your home value drops accordingly. Conversely, if you think home prices are only going to increase, you may consider paying back your HEI now, while your payoff estimate is lower.
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Ways to pay back your HEI
You have the freedom to pay back your HEI in a number of different ways. Here are some of the most common options people frequently use:
Home sale
Best if: You want to move, downsize, or otherwise cut ties with your current home.
Thus far, many homeowners have chosen to pay Point back by selling their home. When you do this, Point will use your home’s final sales price as the estimated final value of your home. You’re also free to sell it off the market directly for a lower price, of course, such as if you want to pass it on to a friend or family member at a discount. In that case, Point may order an appraisal of your home and use this number as your estimated final value in order to calculate your payoff amount.
Pros
- Potential profit from sale
- No need to take on any new debt
- Large lump sum to pay back HEI
Cons
- Home sales can take a long time
- New living arrangements must be made
- Closing costs and readying your home for market can be expensive
Cash-out refinance
Best if: You’re able to qualify for lower (or similar) interest rates on a new mortgage.
The most popular option for homeowners who have paid back and HEI thus far, a cash-out refinance works by replacing your current mortgage with a new, larger loan. You’ll be paid the difference back as cash (hence the name, “cash-out”), which you can use for anything you want, such as paying back your HEI. Cash-out refinances are an excellent option if mortgage lenders are offering lower or similar interest rates to what you’re already paying – but can be your most affordable repayment method in the long-run even with a slightly higher rate.
Pros
- Stay in your current home
- Potential for a a lower mortgage rate
- Large lump sum to pay back HEI
- No additional monthly payments to keep track of
- Payments are predictable and steady
- Interest payments may be tax-deductible
Cons
- Closing costs can be expensive
- Good credit and income are required
- Rates can be higher for cash-out refinances
- Monthly mortgage payment may be higher
- Market conditions may preclude you from getting a lower interest rate
HELOC/home equity loan
Best if: You have good credit and income but don’t want to replace your current mortgage entirely.
Home equity loans and home equity lines of credit (HELOCs) work by offering you funds in exchange for a security interest in your home, similar to a mortgage or refinance loan. Unlike a mortgage, however, you can apply for specific amounts of money, typically up to 80% of your home equity amount. This allows you to apply for the exact amount you need to pay back your HEI — no more, no less.
Pros
- Flexible access to funds
- Stay in your current home
- Build credit with on-time payments
- Fixed rate payments are predictable and steady
- Don’t need to apply for new mortgage
- Interest payments may be tax-deductible
- Fixed interest rate (for home equity loans)
- Option to borrow money over time (for HELOCs)
Cons
- Closing costs can be expensive
- Requires good credit and income
- Can lose home if you default on loan
- Must have at least 20% equity in your home
- Variable rate payments may increase over time
Reverse mortgage
Best if: You’re at least 62 years old, don’t want to make monthly payments, and aren’t concerned about leaving your home to your heirs.
A reverse mortgage is a type of loan that pays you. You can opt to receive funds as a monthly payment, a line of credit you can draw against as needed, or as a lump sum, which you can then use to pay back your HEI. You’ll be required to use the funds from your reverse mortgage to pay back any existing mortgage on your home (if any) as well. This calculator from American Senior can help you check your eligibility for a reverse mortgage.
You don’t need to repay the loan for as long as you’re living in the home, but as soon as you’re no longer there, it’ll need to be repaid one way or another — most commonly by selling your home. This process often starts when people choose to move in with family, for example, or move into a long-term care facility.
Pros
- No monthly payments
- Stay in your current home
- Repays your current mortgage
- Large lump sum to pay back HEI
- Repayment not needed until you no longer live in home
Cons
- Must be at least 62 or older
- Lose home equity over time
- Many qualifications and restrictions
- Difficult or impossible to leave home to heirs
Cash savings
Best if: You have access to sufficient funds and want to avoid debt.
Although it’s not an option for everyone, if you are fortunate enough to have the means, paying back your HEI in cash can be the best all-around option. You won’t need to worry about applying for credit, managing repayment, and paying extra interest and fees. You can simply be free of your HEI as soon as the check clears, assuming you already have the funds on hand. One thing to be careful of is that you’re not draining your savings entirely and that you still have a healthy emergency fund left in place, so you don’t need to rely on credit cards or other debt.
Pros
- Avoid debt entirely
- Stay in your current home
- Pay back HEI with minimal hassle
Cons
- Feasible for only select homeowners
- Can take a long time to save enough
- More vulnerable to financial emergencies
HEI refinance (Re-Point)
Best if: You like your HEI but want to borrow additional funds or to increase your term length.
Re-Point is Point’s version of a cash-out refinance. It works by replacing your current HEI with a new HEI, for another term length. The funds you get from your new HEI can be used to pay back your current HEI, plus some extra to use how you wish, such as for home improvements or repairs. This can be a particularly good option if you want to say in your home long term and have plenty of equity.
Pros
- No monthly payments
- Stay in your current home
- Work with same Point team
- Some closing costs may be waived by Point
- Large lump sum to pay back HEI, plus some extra
Cons
- Can change your pricing
- Must pay back Re-Point in the future
- Must have at least 30% equity in home
Final thoughts
It’s a good idea to weigh the pros and cons of each of these options before you apply for an HEI so that you have a clear plan in how you might pay it back. You should re-evaluate over time, as well, since our circumstances often change. You might fall into an unexpected windfall and be able to pay back your HEI in cash, for example, or see higher-than-average gains with your investment company.
If you’re ready to pay back your HEI, you can visit our step-by-step guide to paying back your HEI or connect with Point’s customer service team. Simply reach out via email (homeownerupdates@point.com) or by phone 888-693-2343 to get started, learn more, or talk to a home equity expert about your options.
Frequently Asked Questions
1 Point is not a tax advisor or financial planner. Please consult a trusted professional for questions pertaining to your unique circumstances.
2 If your HEI funded prior to 2020, your term may be for a maximum of 10 years. Please refer to your Option Purchase Agreement for actual term length.
