REX Agreement
Definition of 'REX Agreement'An alternative to a home equity line of credit (HELOC) and refinancing that allows homeowners to access the equity in their home. The agreement is offered by REX & Company, and it gives homeowners a cash payment of 12 to 17% of their home's market value under the stipulation that REX & Company receives 50% of the increase in the house's value when it is sold.This program is designed for homeowners with above average credit, with single-family detached houses. In addition, homes valued in the top or bottom 10% of their local market cannot participate. |
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Investopedia explains 'REX Agreement'For example, if you own a house worth $400,000 and you sign a REX agreement, then you could be eligible for a cash payment of $48,000-68,000. For the purpose of this example, lets say you took $50,000. If you sold your house 10 years later for $600,000, you would owe REX & Company $150,000, calculated as the return of the initial payment plus one half of the increase in your homes value ($50,000 + [$200,000/2] = $150,000). In this example, you would have paid an annualized interest rate of 11.6%.Here is another example, where the results are not as pretty. As in the above example, your house is worth $400,000 when you sign the REX agreement, and you are given a lump sum payment of $50,000. Let's say that there is a family emergency, and you have to sell your home two years later for $425,000 (approximately 3% growth rate per year). In this case, you would owe REX & Company $62,500. If you still owed $370,000 (a definite possibility if you had a mortgage with a long amortization, had a small downpayment, or had an interest-only mortgage), you could be out of pocket $7,500. In this example, the annualized interest rate was 11.8%. Depending on your individual financial situation, this may or may not be an acceptable strategy. Prudent home owners should talk to a financial professional about their options before deciding on any method of accessing the equity in their home. |
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