Home Equity Settlement Caps

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The CFPB describes home equity contracts whose settlement is the lesser of a home-value share and a time-based cap. A cap is not necessarily the amount owed.

Fictional terms: $40,000 upfront; settlement exactly three years later equals the smaller of 20% of the home’s final total value or the advance compounded annually at 10%. These are invented terms, not a provider quote.

The cap is $40,000 × 1.10³ = $53,240. It already includes the original advance.

At a $300,000 final home value, the share calculation is $60,000; settlement is capped at $53,240. At an alternative $250,000 value, the share is $50,000, so settlement is $50,000—not the larger cap.

The crossover is $53,240 ÷ 20% = $266,200. Below that home value, the share controls; above it, the cap controls at this settlement date.

Exclude fees, improvements and other adjustments. Existing mortgages and selling costs remain separate obligations. Ask for both contractual calculations at the same date and valuation; neither a cap nor absent monthly payments guarantees affordable settlement or refinancing.