Unlock Review: Unlock Your Home Equity

With interest rates on the rise, taking out a HELOC or a Home Equity Loan becomes far less appealing. Interest rates on HELOCs have nearly doubled over the last year, and now range from 7-10% APR depending on a variety of factors.

No one wants to take on a huge monthly payment just to cover the interest on a HELOC, but many people are looking for ways to tap into their home equity. After all, credit card borrowing just hit an all-time high.

If you’re looking for a way to convert your home equity to cash, Unlock may be the right tool for you. It offers a no-interest, no-payment home equity arrangement where you get cash today in exchange for equity when you sell. While it sounds like a good deal, you need to understand what you’re giving up before you sign the agreement. Here’s how Unlock works.

What Is Unlock?

Unlock designs financial products for American homeowners who are unable to take out traditional home equity loans or HELOCs. The company, which was founded in 2020, offers a unique “Home Equity Agreement” HEA that allows homeowners to access their home equity without taking out a loan. The product is specifically designed for homeowners with lower credit or income who may not qualify for traditional home equity products.

During an era of low-interest rates, this product may not have been too popular. But today, HELOCs and Home Equity Loans have interest rates close to double digits. While Unlock isn't necessarily a cheaper option, it is finding traction at a time when traditional loans put a major pinch on borrowers’ cash flow.

What Does It Offer?

Currently, Unlock only offers one financial product. If you own your home, you may be eligible for a home equity agreement through Unlock. The agreement allows you to get cash now in exchange for a share of your equity when you sell or ten years in the future.

Get Money Soon, Pay Nothing For Up to 10 Years

The amount of equity you have in your house is calculated as the value of your house less the amount you owe on your house. If your home equity ratio is at least 20% (meaning your equity divided by your home’s value is at least 20%), you may qualify for a HEA from Unlock. After a quick application process, Unlock does a title review and a home value appraisal. Assuming you qualify, Unlock will send you an offer within a few days. Once you accept, money will be wired to your account and will be available in a matter of days.

When the cash hits your account, you owe nothing until you sell, or ten years down the road when the payment is due as a balloon payment. Realistically, most people will need to sell or take cash out during a mortgage refinance to keep their end of the agreement.

For some people, that ten-year time limit may be a problem, but many people will sell before the decade is up. The median length of time a homeowner stays in their home is 13 years according to a 2018 study by the National Association of Realtors. It’s worth keeping that figure in mind when you consider an agreement like this.

In general, you can use the cash for anything you want, but Unlock may require you to pay off a property lien if there is another second-position loan on your home.

Get Cash in Exchange For Future Home Equity

The essence of the Home Equity Agreement is cash today in exchange for a share of equity down the line. If your house is worth $400,000 today, and you get $40,000 today, your cash is worth 10% of your home’s value. Typically, the exchange rate for cash is 2.0x. That means you’ll owe 20% of your home’s value when you sell (or at the ten-year mark).

If you sell your home for $500,000 in seven years, you’ll owe Unlock $100,000 or 20% of the value of the home. The faster your home value rises, the better deal this is for Unlock. The slower the value rises, the better deal it is for you. Each party takes on a similar risk with this agreement.

No Interest Charges, No Monthly Payments

Since Unlock offers a Home Equity Agreement, there are no interest charges and no monthly payments. Unlock shares in the value of your home at the point of sale (or when you decide to buy Unlock out). Until then, the cash you receive is yours to keep, and you don’t need to make payments. Unlock will hold a second-position lien on your property, so you will need to make good on your end of the agreement when you sell or after 10 years.

Not Available Nationwide

Unlock isn’t operating throughout the entire United States yet. It is currently issuing agreements in the following fifteen states: Arizona, California, Colorado, Florida, Michigan, Minnesota, Nevada, New Jersey, North Carolina, Oregon, South Carolina, Tennessee, Utah, Virginia, and Washington State.

May Be Available For Rental Homes

Real estate investors often struggle to get equity out of their rental properties. However, Unlock offers agreements for rental homes and second homes. The catch is that these agreements require more available equity in order to qualify for the agreement. Unlock's pricing for rental properties is somewhat higher than the pricing for primary residences, and the amount of money Unlock may be willing to extend tends to be lower. There may be more stringent underwriting criteria for these rental properties as well.

Are There Any Fees?

Unlock has two major fees that you should know about. The first is called an exchange rate. The exchange rate is the ratio of how much equity you’ll need to pay back in the future, relative to the equity you’re unlocking today. Most people have an exchange rate of 2x. That means you’ll need to give up twice as much equity in the future as you’re receiving for your equity today.

If your house is worth $400,000, and you’re unlocking $40,000, you are getting 10% of your home value out today. When you sell your house, you’ll need to pay Unlock 20% of the proceeds of the sale (twice as much)

In addition, Unlock charges an origination fee of 4.9%, which is subtracted from the initial money you receive. Using the example above, you’ll pay a fee of $1960 to unlock $40,000. That means you’ll actually receive $38,040.

How Does Unlock Compare?

Unlock is one of a growing number of HELOC alternatives. Borrowers with more home equity and better credit can find a lower origination fee and similar terms with Hometap. If you’re seeking a term longer than 10 years, you should consider Unison (which offers renewals) or Point (which has a 30-year term).

With any of these HELOC alternatives, you’re giving up a lot of future equity for cash today. Only you can decide if the tradeoff is worth it. Most people will pay the equivalent of a 7-12% interest rate on their agreements. But this depends on how quickly home prices rise and how long you stay in the agreement. If prices rise quickly, and you sell your house in four years, you’re going to pay much more than someone who keeps the agreement in place for ten years.

How Do I Apply For An Unlock Home Equity Arrangement?

To apply for a Home Equity Arrangement, select the get started button on the website. Provide Your home’s address and value, the current balance of all existing mortgage debt on your home, and personal identification information so Unlock can review your credit history and your occupancy status.

Depending on all of these factors, Unlock may choose to extend a home equity arrangement. If you’re not sure whether you will qualify, consider using the “What it costs” tool to learn more about the required equity in your home.

Is It Safe And Secure?

Unlock’s privacy policy seemed light on details related to its security. It collects non-public personal information about users and their financial assets including first and last names, physical addresses, phone numbers, social security numbers, and credit scores. However, it is not clear whether the company uses best practices related to the encryption of this secure information at rest. The company conducts regular security audits, but it doesn’t provide details of what those audits entail.

Since Unlock is not a bank, it doesn’t necessarily need to follow bank-level security guidelines. So your information may be at a slightly elevated risk of falling into the hands of bad actors. That means you may have an elevated risk of identity theft. However, providing information to any online company involves some level of information risk. The elevated risk may prove to be of no concern to you.

How Do I Contact Unlock?

You can call Unlock’s customer service at 1-800-560-3450 or email them at hello@unlock.com. The company’s headquarters is located at 5 Bryant Park, Floor 23, New York, New York, 100018.

Is It Worth It?

Unlock is an alternative financial product that is specifically designed for people with lower credit scores or lower incomes. It is designed for people who have home equity but who wouldn’t be able to afford the monthly payments associated with a HELOC or a Home Equity Loan. Since these agreements are going out to people that banks deem as riskier borrowers, the agreements are priced accordingly.

I suspect that a lot of people will get 10% of their home equity in cash today only to sell three or four years down the line and need to repay 20% of the equity. That will usually end up being a terrible deal. Unlock offers a decent product. That said, you should shop around before you decide that Unlock is the right HELOC alternative for you. You may be able to get a better deal elsewhere.

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