EquityKey, a real estate investment company, is once again offering what some are calling an alternative to the HECM reverse mortgage. This product was originally offered in 2007, but after a loss of funding in 2008, the product could no longer be offered. Now the product is back, but is it a comparable solution to the HECM reverse mortgage?

How the EquityKey Product Works

Instead of tapping into one's home equity to receive funds, like with the HECM reverse mortgage, the homeowner instead receives funds based on the appreciation of his or her home's value, which is determined by the S&P/Case-Shiller Home Price Index. The homeowner receives 8%-16% of the home's current value and, in exchange, EquityKey will get between 50% and 100% of the home's potential appreciation over the contract period. Once the transaction is complete, if the home value has appreciated, EquityKey will receive its share; but if the home value has decreased or remained the same, the homeowner will not owe anything as long as he or she has met all the requirements of the agreement.

How the Product Compares to the HECM Reverse Mortgage

To be eligible for a HECM reverse mortgage, all homeowners on the title must be at least 62 years old, and they must be financing their primary residence. To be eligible for the EquityKey product, only one homeowner on the title must be between the ages of 55 and 85, and residences other than a primary residence can be financed. With the HECM reverse mortgage, the loan becomes due and payable as soon as the homeowner vacates the home; with the other product, the homeowner can move out of the home and will still meet the requirements of the loan as long as his or her name is on the title.

Both products require no monthly mortgage payments, but the overall costs of the EquityKey product, which does not charge interest, may be lower. However, a homeowner has the possibility to receive more funds from the HECM reverse mortgage, which takes home appreciation into consideration with the growth feature on the line-of-credit disbursement option (homeowners can get access to more equity if their home values increase). HECM reverse mortgages also have more disbursement options available, while the alternative only offers a lump sum or monthly payment.

If the homeowner passes away, EquityKey has the right to purchase the home, regardless of the homeowner's intentions for the home. With the HECM reverse mortgage, the bank cannot take a borrower's home as long as the loan requirements are met. And with both products, the homeowner will not owe more than the value of his or her home at the time it becomes due. Each product has its pros and cons, so homeowners must decide which product would be the best fit for their financial situation.

The amount a homeowner can receive from either product varies based on the home value, interest rates, and the disbursement option chosen. EquityKey's website offers a free calculator that homeowners can use to determine how much money they could receive. There are also various HECM reverse mortgage calculators that homeowners can utilize to help them figure out the amount of loan proceeds they could receive. With all of the recent elimination of various fees associated with the HECM reverse mortgage, this loan has become less expensive and gives homeowners access to more of their home equity, which could make it a more attractive option.

The two products are quite different and may not necessarily be alternatives to each other. The product a homeowner chooses depends on what best fits their needs. Homeowners interested in either product should do their own research, speak with a loan specialist, and receive loan counseling to help them weigh the pros and cons of both products before they make their final decision.