An updated review on Point.com
For years, home equity loans (and their close cousin, the HELOC), were the only way for homeowners with equity to borrow against the equity in their home if they needed money.
Then, along came a new breed of lending company that offered “sharing” the equity in your home, where they give you a certain amount of cash in exchange for “owning” part of your equity. Some of the companies in this category are Point.com, Unison, and others. They all operate a little differently, but the premise is similar: you get money, you share your home equity with them, and when you sell, they get a certain amount of the value of your home back.
Now, with any financial product, the devil is in the details. In 2017, we wrote an article on Point.com’s business model in order to provide some clarity to consumers considering the option of “selling” their equity through Point.com.
We thought it was time, given that nearly two years has gone by, to re-evaluate how their company operates and further clarify for our readers what you should know if you are considering engaging with Point.com.
What is Point.com?
Point.com is a company that gives you up to $250K for the right to record a Deed of Trust and Memorandum of Option on your property. These documents outline how much money (or, what percentage of equity) Point.com is entitled to when your home is eventually sold, among other things.
What is a Deed of Trust?
Good question! A Deed of Trust is where the legal title of your property is transferred to a trustee. Deed of Trusts often have a “power of sale” clause, unlike a mortgage agreement does, where if the requirements (whatever they may be) are not met, then the other party has the power to sell the property.
What is in Point.com’s Deed of Trust?
It is unclear. According to their website, during the process, “Point.com files a Deed of Trust and Memorandum of Option” after the appraisal is made as to your home’s value and before they transfer your funds.
How much money can I get for my home equity by using Point.com?
From their website, Point.com says that to be eligible, “you need to retail at least 20% of your equity in your home after Point.com’s investment”. They also say that you can get up to $250K. Which one might assume would mean that you could possibly qualify to get up to $250k, assuming that you still have 20% equity in your home.
Just to run through a scenario, if you had a $1,000,000 home and you owed $600,000 to your bank for your mortgage (remaining loan balance), you would have $400,000 in equity. You would need to retain $200,000 in equity (20% of home value), making you eligible for a $200,000 payment from point. However, they say that they typically offer between 5% and 10% of a home’s current value, which would mean they might give you between $50,000 and $100,000.
How much money do you pay Point.com?
First, Point.com charges a 3% to 5% processing fee. While you don’t technically pay this up front, it is deducted from the amount they give you.
Second, Point.com charges you $500 – $700 for the appraisal, whether or not you end up getting an offer from them (it appears).
Third, Point.com applies a “risk adjustment” to your home’s appraised value of up to 20%. In other words, if an independent appraiser values your home at $1,000,000, Point.com can, for the purposes of your agreement, say it is only worth $800,000. This comes into play as a cost to the homeowner because “in exchange for Point’s investment today, Point receives a share in the home’s appreciation above the Risk Adjusted Home Value. It is unclear what affect this has on you as a homeowner as they state “the share is determined during underwriting”.
How can I pay back Point.com?
It appears that the term of the agreement is 10 years. If you pay back Point.com within those 10 years, it seems that you can get out of the agreement and keep your home. It appears that if you don’t get out of the agreement in those 10 years then I believe (though I am not certain because it is not expressly stated) that they can force a sale of your property to recoup their money.
How much will I owe Point.com if I want to pay them back?
It appears from the Point.com calculator that what you will need to pay back Point depends on how much your home has appreciated. If you borrow $100,000 and your home does not change in value, in five years you will owe Point $130,000, for example. (https://point.com/calculator). If your home declines in value to $750,000, it says you will pay Point $80,000, less than the amount they gave you. If your home appreciated to $1,480,200, you would owe them $226,000.
So, basically, it is very hard to predict what you will owe them.
Because it is very hard to predict what you will owe them, folks who intend to take money from them with the intent on paying them back in order to get out of their contract may want to think twice, as you would not be able to determine how much money you would need to come up with to do this.
Also, from a review that a customer posted (see below), it appears that Point.com might discount your equity from the get-go, and then charge you a portion of the equity gain (which includes the extra bit they artificially discounted), making the portion you owe greater than the natural and true appreciation of your equity.
How does Point.com compare to other options a homeowner might use to get a loan?
Other standard options for homeowners who need a loan are HELOCs, home equity loans, or personal loans. You can read this article that compares a HELOC to a personal loan. The APRs are around 4-7% for a HELOC and around 6%-15% for a personal loan.
The APR for a Point.com arrangement is hard to predict, as it is dependent upon home appreciation. I might add that the APRs on their calculator page seem a bit lacking in detail, if in fact what they are doing is to discount the value of your home initially, leading to a unnatural “gain” in equity later on, in which they share in. The APRs on the calculator page don’t mention this, so I can’t be completely sure how they are calculating the various APRs.
What are the major drawbacks for a homeowner using Point.com?
The biggest drawback is that you have a Deed of Trust put on your property, which means that you no longer independently own your property. You are not necessarily the sole owner.
Because you are not necessarily the sole owner, there may be restrictions on things like making improvements, refinancing, or wanting to rent your property.
The other big drawback is while they say that you can buy them out, it is unclear from the information they give exactly how much money you will need to come up with. Because you can’t know the future appreciation, you won’t know how much money you actually have to come up with to get out of the arrangement.
Consumers can’t know the actual terms that they might get until they’ve already sprung for a pricey appraisal, it appears.
Why doesn’t Point.com list their legal documents up front for people to review?
Good question. It could be that they are made available to people who make inquiries in their process. I would definite ask to see them up front before spending any money on an appraisal.
Is their cost analysis accurate or does it leave some things out?
You really won’t know what the deal you are getting from Point is until you go through the process and get the actual offer and all the paper work.
There’s a review that sheds some light on the terms someone reports getting from Point, which appears to be give detail into exactly how much a an arrangement with Point.com ended up costing them. Keep in mind that this is one anecdote, however, Point.com did respond, and therefore perhaps it is credible:
To make it into plain English, it appears that this customer got $38,000 from Point, and then 23 months later wanted to pay back Point. It appears that there are two components to paying back Point, 1) the “loan”, and 2) the appreciation share, in this case 25.4185%. It looks like the agreed value of the home was $400,000 when the agreement was signed, and then 23 months later the home was worth $520,000. The formula is $520,000 – 400,000 = 120,000 * 25.4185 = 30,502 plus the original loan amount which was 38,000.
The big question that comes from this is, if Point is discounting what the home is worth by 20% off the bat, then the idea that you are “sharing in the appreciation” could be a bit misleading because if this person’s home was valued 20% under the actual appraisal at the outset, then it may have been worth 500,000. Then, when the customer goes to pay back Point 23 months later, it is valued at 540,000. If it was valued correctly, then the formula would have been applied to $40,000*25.4135 = 10,165 in addition to the original 38,000 borrowed.
And, remember, the customer likely didn’t get the full 38,000 due to the fact that Point subtracts the fees out of 3-5% so they likely got $36,100 to $38,860. Also, minus the $500 to 700 they paid for the appraisal so, $35,400 to $36,360.
Assuming these things are correct, the $36,360 the customer pocketed from Point cost them $68,502.20 23 months later, nearly 200% of what was “borrowed”.
Again, this is an anecdote, so I am not sure how valid it is to Point.com’s overall customers. But because Point.com doesn’t publish their agreements, it’s all we have to go on, besides the language on their website.
And, their website does mention that they discount the original value of the house, which lends some credibility to this analysis.
What Point seems to do
A possible description of what Point does might be “we mark down the value of your home by up to 20% and then charge you a percentage of the “appreciation” from this marked down value. And, if you want to pay us off and get out of the contract, then you must pay us this percentage of this “appreciation” in addition to any real appreciation in order to get out of it. And, if you can’t pay us this amount back within 10 years, then we have the right to sell your home.”
I want to stress that it is not exactly clear under what conditions they can force a sale of your home, nor what the exact financial terms are, so this is based on assumption, but definitely get a copy of their Deed of Trust and Memorandum of Option before proceeding with any arrangement, as you’d need to understand the mechanics clearly.
What you should do before considering Point
- Get a copy of their Deed of Title and Memorandum of Option before you plunk down $500 to 700 for an appraisal
- Have a real estate lawyer review these documents and make sure you know your rights as it pertains to selling, refinancing, renting out, and making improvements on your home.
- If you still want to proceed to pay for the appraisal, then make sure that soon after, when they make you your offer, that you thoroughly understand 1) how much they are discounting your home value right off the bat, and 2) work out the financial scenario, similar to the example above, as to how much you will owe if your home “appreciates” by certain percentages.
- I would also recommend that after you’ve run the numbers on what you’ll owe that you think hard about whether you plan to pay Point back, and whether the chunk of money they will take in any scenario is worth the amount you will get.
When you compare Point to a HELOC or home equity loan or personal loan, it starts smelling like a sub-prime product, which is a product which has worse terms than “prime” products. With a HELOC or home equity loan, in the scenario above, a $38,000 would have had a 4% to 7% interest rate and can be paid off at any time usually with no penalty you keep your title with no one else telling you what to do with your property.
For many homeowners, they may not have the credit to obtain a standard home equity, HELOC or personal loan and I am assuming that homeowners with this profile are customers for Point.com. Hey, we’ve all been in situations where our credit doesn’t allow us to get the best deals. It’s tough. It’s painful. In one sense, Point.com has provided an option for some people where there wasn’t one before. But at what cost?