At 68 She’ll Trade 25% of Her Home’s Future Value for $100,000 Today. At 78 the Company Will Collect About $290,000
Home equity contracts promise cash today with no monthly payments, but the bill that arrives a decade later can dwarf what a reverse mortgage would have cost. Before a retiree signs, there is a calculation most companies never show her.
This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.
A 68-year-old homeowner with a house worth roughly $780,000 signs a home equity contract. She gets $100,000 in cash today and makes no monthly payments. In return, the company gets 25% of the home’s value when the 10-year term ends. If the house gains about 4% a year, it will be worth around $1.16 million when she turns 78. The company’s share would be about $290,000.
Plenty of retirees are being offered this deal. In a January 2025 report, the Consumer Financial Protection Bureau found that the four largest home equity contract companies securitized $1.1 billion backed by 11,000 home equity contracts in the first 10 months of 2024. The regulator called the products “costly, risky and complex.”
Her Real Cost Works Out to About 11% a Year
When $100,000 becomes $290,000 over 10 years, she is paying about 11% a year. For comparison, the 10-year Treasury yield is near 5% and inflation is running at 3%. She would be paying roughly twice the risk-free rate on money secured by her own house.
The contract never lists an interest rate because the companies call it an investment rather than a loan. The CFPB has disagreed in court, arguing that these contracts fall under the Truth in Lending Act.
The 25% share applies to the home’s entire value at the end, including the value she already had. If the house is still worth about $780,000 at 78, the company takes in roughly $196,000. That is an effective cost near 7% a year. She received about 13% of her home’s value and gave up 25%. The CFPB has noted this multiplier setup, describing a homeowner who gets cash for 10% of their home’s equity but the contract applies a 2x multiplier.
A Large Balloon Payment Comes Due at 78
When the term ends, she owes a lump sum. If she doesn’t have about $290,000 in cash, she has to sell or refinance just as moving and qualifying for a loan get harder. The CFPB warned that these companies “may not be willing to work with you if there’s a disagreement about how much you owe them or if you have trouble making the large balloon payment at the end.”
Why a Reverse Mortgage Usually Beats the Equity Contract
If she plans to stay in the house, a federally insured reverse mortgage (called a HECM) is the better choice. HUD makes it available to homeowners age 62 or older, and it does not require any repayment of principal, interest or servicing fees as long as you live in your home. Before closing, she must complete one-on-one counseling with a HUD-approved counselor.
A HECM balance still grows, because interest and mortgage insurance compound. Suppose the all-in rate were 7%. A $100,000 draw would grow to about $197,000 over 10 years, compared with about $290,000 under the equity contract if the home gains 4% a year. A HECM also has no 10-year deadline. The balance comes due only when she sells, moves out for good or dies, and her heirs never owe more than the house is worth.
Downsizing Removes the Financing Cost Entirely
Suze Orman has made the blunt case for selling: “If you need money for retirement, that means that this house is costing you too much or you have too much locked up in this house for you to live the life that you want to live.”
The timing helps. The Case-Shiller national home price index is at 337.3, its highest reading in the past year. Existing-home sales are slow at a 3.98 million annual pace, so selling could take longer. If she expects to move within 10 years anyway, selling now and buying something cheaper frees up cash at no ongoing cost. Selling costs are paid once. The equity contract’s cost grows every year she holds it.
What She Should Decide Before Signing Anything
- Decide whether she’ll still live there at 78. If she will, get a HECM quote and compare its projected 10-year balance with the contract’s settlement table. If she won’t, downsizing almost always beats paying a company 25% of the home’s value to borrow money she’ll pay back when she sells.
- Run the contract at zero appreciation as well as at the company’s projection. At 4% yearly growth the cost is about 11% a year, and even with flat prices it’s about 7%. The contract only comes out ahead if her home loses value. The most common mistake is judging the deal by the lack of monthly payments. That feature is exactly what lets the cost grow quietly for a decade.
Contact [email protected] for any questions or corrections.
Jake has been been working in financial media for almost 15 years. He focuses on all things personal finance for 24/7 Wall St. with high hopes to educate and entertain. Most recently, Jake spent 12 years working various roles at The Motley Fool. He started copy editing fool.com content, worked on premium and marketing campaigns, and helped launch The Ascent, a personal finance brand.
His work has been featured on platforms like MSN, Yahoo Finance, USA Today, and more. He's written about credit cards, social security, ETFs, savings accounts, and just about anything else you can imagine when thinking about money. Jake love to cook, play golf, and tell people he's never had a cavity. (It's true!)
