The recent economic turmoil has led to a decline in housing values across the US, with prices dropping an average of 10%. Some experts predict that prices may continue to decrease in 2023. It is uncertain how these changes will impact the homeownership rate, since history has shown us how “sticky” it is. However, the high rates may require a shift in paradigm when it comes to mortgage products.
When rates are high and mortgage sales are plummeting, bringing in potential homebuyers can become impossible - unless you offer them what they really need. At Contigo Capital, we formulate Risk-Transfer Mortgages™ (RTM™), which enable homeowners to share the risk in order to mitigate it. The RTM™ allows homeowners to share a portion of their home's future value with the lender in exchange for downside protection (in case the house value drops), better mortgage rates, and lower yet fixed monthly payments.
Getting you your dream home with a mortgage that includes all of these benefits may sound too good to be true. Here are answers to some of the questions you may have:
1. Can I lose a portion of the future appreciation of the home?
You’re not losing, you’re sharing. The meaning of RTM™ is that if you want to reduce the risk of losing equity when prices drop - you need to share a fraction of the wealth when prices go back up. In the current economic climate, downside protection is the only way to make sure you are not wiped out if prices decrease significantly.
2. How can you estimate the future value of the home and determine the appropriate share?
No one can predict the future. That’s why RTMs are linked to the home value at any given time. When you decide to terminate the loan, the final payment will be calculated according to the house value at that time.
3. But what if I renovate? Will I have to share that appreciation as well?
Nope. Because the loan is linked to the house value, and not the actual bid you got for it, anything above the value will be yours to keep.
4. Do I get full control over the property? Can I rent or sell?
Yes, you own your property. Whether you choose to live in it, rent it, or sell it - you’re calling the shots. RTM™ means you're sharing the risk in exchange for a portion of the future value - not for the use of the property.
5. What if house prices soar again and I want to sell? Will I have sufficient funds to cover the final payment?
Yes. Your RTM™ can never be underwater (as long as your property doesn’t deteriorate significantly due to negligence or poor upkeep, for example). When you sell, you will receive enough money to repay the loan in full.