A second mortgage can free you from a variety of financial snares. You can use the loan to pay off debt, renovate your kitchen, or even pay tuition.
But a second mortgage also comes with costs — regular monthly payments and interest charges — which is why Unison HomeOwner captivates so many people who are shopping for a second mortgage.
Unison will loan you up to 17.5 percent of your home’s value, and the company won’t charge interest or receive monthly payments.
Instead, Unison will own a percentage of your home’s appreciated value.
It’s an intriguing idea, but will a contract with Unison actually benefit you in the long run?
Let’s take a closer look.
Unison HomeOwner Review: How It Works
Unison HomeOwner could loan the owner of a $200,000 home up to $35,000, which equals 17.5 percent of the home’s value.
As the homeowner, you could use the money however you wanted. In return for the $35,000 loan, Unison could claim up to 70 percent of your home’s appreciation when you sell.
So, let’s say your $200,000 home sells in seven years for $250,000, earning $50,000 in profit:
- Unison’s share: You’d owe Unison 70 percent of the $50,000 you’d earned on the sale, or $35,000.
- The loan’s principal: You’d also owe Unison the original $35,000 it loaned you.
- Total cost: In total, you’d pay $70,000 for borrowing $35,000 over seven years, not counting the initial 3.9 percent origination fee which would equal $1,365 in this case.
It Works Both Ways
The more your home grows in value, the more you’d owe Unison.
Likewise, if your home loses value, Unison’s stake would also decline.
Let’s say the housing market in your area declined over seven years and you could sell your $200,000 home for only $180,000.
This would represent a 10 percent depreciation causing a loss of $20,000:
- Unison’s share: Unison would absorb 70 percent, or $14,000, of your $20,000 loss.
- The loan’s principal: You’d still owe Unison the original $35,000 you borrowed.
- Total cost: Unison would deduct its loss from the principal, meaning you’d owe $21,000 for borrowing $35,000 over seven years, again not including Unison’s 3.9 percent loan origination fee which would cost $1,365 on a $35,000 loan.
Unison requires you keep the home at least three years before it takes a loss.
The company also won’t absorb losses resulting from the homeowner’s failure to maintain the property.
How to Best Use Unison HomeOwner
Since Unison’s share of your appreciation would grow in value as your home gains value, you can save money by buying out Unison’s share sooner rather than later.
You don’t have to wait until you sell the home. After the third year you can request to buy out Unison’s share in your home. The company will send out an appraiser who will determine your home’s market value.
Unison would use this appraisal to determine a fair market price for your home. If the appraised price shows any appreciation, you’d pay Unison its share of the appreciation plus the original loan amount.
Buying out the company’s share of your home early could save you tens of thousands of dollars if your home continues to appreciate.
A Closer Look at Costs Over Time
On average, homes appreciate at about 3 percent a year nationally. Some markets gain value more quickly, and the real estate market goes through hot streaks and cooler periods.
For this example we’ll use a 3 percent rate of appreciation on our $200,000 house with Unison claiming 70 percent of your appreciation in exchange for a $35,000 loan.
|Elapsed time||3% Appreciation||Unison’s Share||Unison’s Payout||Home’s Value|
If you waited 30 years before buying out Unison and your home had appreciated by $285,500, you’d owe Unison $199,850 for its share in your appreciation along with the $35,000 loan principal.
This means you’d pay $234,850 for borrowing $35,000. A typical loan would need to charge 19 percent interest to earn such a return.
You’d still hold the home’s original value of $200,000, and you’d clear about $50,000 in your own share of the appreciation after paying Unison’s share.
If you opt for a no-payment, no-interest loan from Unison, be sure you buy out Unison’s share as soon as you can, especially if you expect the home to gain value quickly.
And keep in mind: Not all Unison loans require a 70 percent share of your appreciation. If you borrowed a smaller percentage of your home’s value, Unison could claim a smaller share.
If you borrowed only 10 percent of your home’s value, for example, Unison would require about 40 percent of your appreciation.
Not All Appreciation or Depreciation Counts
Unison is careful not to loan money on homes which are likely to lose value. But if your home loses value because you failed to maintain it properly, Unison can refuse to share in the loss.
The company may send out an inspector to determine the condition of your home so it can better track deterioration.
At the same time, you can limit how much Unison can earn if your home gains value because you renovated it. For example, if you add a third full bathroom, you could add $25,000 in value to your home in one year.
To keep Unison from claiming its share of this appreciation, you’d need to keep good records and use a licensed contractor to prove your renovations led to the gain in value.
Ways to Spend Cash from Unison HomeOwner
When you let Unison liquidate a portion of your equity, you’ll be free to spend the cash as you see fit.
- Buy a new car
- Pay off old debt
- Update your home
- Pay tuition
- Go on a vacation
- Start a business
However, it makes the most sense to reinvest the money back into your home by renovating, updating, or remodeling your home.
Otherwise, you’re converting equity in your home to other kinds of value which may not endure the way your real estate investment should.
If you use your equity to buy a new car, for example, the car will be worth less in five years.
Reinvesting in your home lets your equity continue to grow along with the real estate market.
Alternatives to Unison HomeOwner
Unison isn’t the only way to access your home’s equity. For years, homeowners have borrowed money against the equity in their homes to make improvements or consolidate debt:
- HELOC: A home equity line of credit (HELOC) gives you a credit card-style account with your borrowing power secured by the equity in your home. You can access the money gradually, as you need it.
- Home Equity Loan: You can also access your equity as a lump sum by getting a second mortgage. You’ll get a fixed loan much like your primary mortgage. You’ll then have to pay on both mortgages each month.
- Cash Out Refinance: Some homeowners prefer to buy the same home all over again, getting a new mortgage to pay off the balance of the original mortgage. The leftover cash can pay for home improvements, debt consolidation, or other needs. This way you have only one payment.
While each of these more traditional options requires monthly payments and charges interest on your balance, you should consider all options before accessing your equity.
If you’re not sure whether you could pay off Unison’s share of your home plus the principal of the loan within three to five years, there’s a good chance Unison’s stake in your home could grow into a much more significant amount.
Then, when you sold the home or after 30 years passed, you’d need to find some way to pay Unison its share plus the principal. You may even need to get yet another mortgage to cover those costs.
Bottom Line: It’s a Loan and Loans Cost Money
Unison calls its loans “co-investing” in your property. The company uses terms like “partnership” to share its philosophy.
It’s a wonderful ideal. Who wouldn’t want to partner with someone offering loans at no interest and with no payments?
As consumers, though, we have to look at the actual, long-term costs. If you’d pay a lot more borrowing from Unison, consider a more traditional loan option.
If you use Unison because you need money and can’t afford to make payments, try to buy out the company as soon as you can, especially if your house gains value quickly.