A Home Equity Agreement (HEA), sometimes referred to as a "shared equity agreement" or "home equity investment," is a financial product that allows homeowners to receive a lump sum of cash in exchange for a portion of their home's future appreciation. Unlike a home equity loan or HELOC, it does not involve monthly interest payments. Instead, the homeowner agrees to share a percentage of the home's value with the investment provider when the agreement term ends or when the home is sold.
This calculator helps you estimate the potential cash you could receive from an HEA, based on your current home value, mortgage, desired equity share, and projected home appreciation over the term of the agreement.
How the Calculator Works:
The calculator estimates the future value of your home and then determines the value of the equity share you've agreed to provide.
Available Equity: This is the current market value of your home minus any outstanding mortgage balance. It represents the portion of your home that you truly own.
Formula: Current Home Value – Outstanding Mortgage Balance
Future Home Value: This is an estimate of what your home might be worth at the end of the agreement term, assuming a consistent annual appreciation rate.
Formula: Current Home Value * (1 + (Assumed Annual Appreciation Rate / 100)) ^ Agreement Term (Years)
Future Equity: This is the estimated equity you would have in your home at the end of the agreement, assuming the projected appreciation.
Formula: Future Home Value – Outstanding Mortgage Balance (assuming mortgage remains the same for simplicity in this projection)
Your Equity Share Value: This is the portion of your *future* equity that you agree to share with the HEA provider. This is the amount you would owe them at the end of the term.
Formula: Future Equity * (Your Desired Equity Share Percentage / 100)
Estimated Cash Received (Payout): This is the cash you would receive upfront from the HEA provider. It's typically a percentage of the total equity share they will eventually receive back, adjusted for risk and their return expectations. For simplicity in this calculator, we're presenting the value of the equity share you are selling as the potential payout. In a real HEA, the upfront amount might be less than this projected future value.
This calculator displays the projected "Your Equity Share Value" as the potential Payout Amount.
Use Cases for Home Equity Agreements:
Homeowners seeking cash: Individuals who need funds for renovations, debt consolidation, education, or other major expenses without taking on new debt.
Retirees: Seniors looking to supplement retirement income or pay for healthcare costs without selling their homes.
Homeowners concerned about market risk: Individuals who believe their home's value will increase but want to lock in some of that gain without a mandatory repayment obligation.
Diversifying assets: Using home equity to invest in other opportunities.
Disclaimer: This calculator provides an estimate for educational purposes only. It does not constitute financial advice. Actual HEA terms, payouts, and future home values can vary significantly based on market conditions, the specific provider's terms, your creditworthiness, and other factors. Always consult with a qualified financial advisor and carefully review the terms and conditions of any HEA before entering into an agreement.
function calculateHomeEquityAgreement() {
var homeValue = parseFloat(document.getElementById("homeValue").value);
var outstandingMortgage = parseFloat(document.getElementById("outstandingMortgage").value);
var equitySharePercentage = parseFloat(document.getElementById("equitySharePercentage").value);
var appreciationRate = parseFloat(document.getElementById("appreciationRate").value);
var agreementTermYears = parseFloat(document.getElementById("agreementTermYears").value);
var payoutAmountElement = document.getElementById("payoutAmount");
// Input validation
if (isNaN(homeValue) || homeValue <= 0 ||
isNaN(outstandingMortgage) || outstandingMortgage < 0 ||
isNaN(equitySharePercentage) || equitySharePercentage = 100 ||
isNaN(appreciationRate) || appreciationRate < 0 ||
isNaN(agreementTermYears) || agreementTermYears = homeValue) {
payoutAmountElement.textContent = "Mortgage > Home Value";
payoutAmountElement.style.color = "#dc3545";
return;
}
// Calculations
var availableEquity = homeValue – outstandingMortgage;
// Calculate future home value using compound growth
var futureHomeValue = homeValue * Math.pow((1 + (appreciationRate / 100)), agreementTermYears);
// Assuming mortgage balance remains constant for this simplified projection
var futureEquity = futureHomeValue – outstandingMortgage;
// Ensure future equity is not negative
if (futureEquity < 0) {
futureEquity = 0;
}
// Calculate the value of the equity share you are selling
var equityShareValue = futureEquity * (equitySharePercentage / 100);
// Format the result as currency
var formattedPayout = "$" + equityShareValue.toFixed(2).replace(/\d(?=(\d{3})+\.)/g, '$&,');
payoutAmountElement.textContent = formattedPayout;
payoutAmountElement.style.color = "#28a745"; // Green for success
}