Co-creator says it could impact about seven million people.
Newfi Lending launched EquityChoice, a shared appreciation mortgage designed to provide homeowners with instant access to their home equity, all without the need for monthly payments, savings depletion, or liquidating other investments. This offering, according to Newfi President of the Investor Group and Co-Creator Pat Doyle, said it not only empowers homeowners to manage their wealth more effectively but also opens up a brand new asset class for investors.
As of 2023, U.S. homeowners have collectively accumulated over $28 trillion in housing wealth. However, the reluctance to tap into this wealth due to persistently high interest rates has been a common challenge. EquityChoice aims to address this issue by granting homeowners immediate access to capital at a below-market fixed interest rate, all while allowing them to share in the future appreciation of their homes.
A portion of the loan the borrower pays will be in a fixed interest rate and a portion of the interest is shared appreciation, Doyle said.
"In exchange for a well-below market interest rate where we defer interest to a balloon payment in the future -- in other words the borrower doesn't have to make any mortgage payments -- the investor also receives a share of the future appreciation of the house," Doyle said Thursday.
"The proceeds can be used to acquire a vacation home, fund a wedding, remodel a house, rather than selling liquid investments”, Doyle said.
The marketplace is estimated at about seven million people.
He said it's not a debt consolidation product. It's designed for a prime borrower who has liquidity and "would prefer to unlock or take it out of the equity in their house rather than sell their stocks."
When it comes to loan originators selling this product, Doyle said Newfi is going to do the heavy lifting on the underwriting side and help LOs develop a source of income "where there really isn't any."
But EquityChoice isn't just for homeowners; it also offers benefits to investors. It is eligible for Real Estate Mortgage Investment Conduit (REMIC) status and is capital-efficient -- prerequisites that will contribute to its widespread adoption over the next five years.