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Should retirees consider a home equity sharing agreement (HESA)?


Clay raised seed funding in 2023 and is initially launching the product to home owners in the Greater Toronto Area as an alternative to reverse mortgages and the simple—although not always ideal—option of selling a property to downsize or become renters.

What is a home equity sharing agreement?

The HESA is a relatively straightforward concept. You give some of your home equity to Clay in exchange for cash today. Clay will get paid when you sell your home in the future, up to 25 years down the road, meaning you don’t need to make monthly payments in the meantime.

The limit for a HESA is up to 17.5% of your home’s value, up to $500,000. However, most home owners will get nowhere near that $500,000 limit. The average Canadian home price in December 2023 was $657,145, according to the Canadian Real Estate Association. That would translate to a potential lump sum cash payment of $115,000. The maximum payment of $500,000 would apply to homes valued at around $2.8 million.

An interesting option with the HESA is that you can buy back Clay’s share of your home anytime after the first five years. So, it’s not an irreversible decision. But there are a few costs to consider.

Before you can access a HESA, your property is independently appraised to determine its fair market value. Clay will then apply a risk adjustment rate of 5% to determine its starting value for the HESA. Home owners must cover a 5% origination fee and a closing fee of 1% of Clay’s share of your home appreciation (or $500, whichever is greater). The home owner must also pay the cost of inspections, appraisals and fees to cover the registration of Clay’s charge on the property.

So, Clay gets a good deal on purchasing some of your home’s equity at a lower price, and you pay the ongoing maintenance costs for 100% of the property going forward. The origination and closing fees can also add up. These nuances help make the HESA a good investment for Clay.

Should retirees consider a HESA?

I give Clay credit for its innovative approach to helping seniors access their home equity in retirement. Retirees who can’t tap into their home’s value may not have sufficient income to cover their expenses. Some retirees want to use home equity for gifting to their children during their lives, sometimes to help them get into homes of their own.

A simple alternative may be to downsize or to sell and become a renter. But downsizing can be costly when you consider the transaction costs, including real estate commissions and land transfer tax.



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