HELOC alternative Hometap raises $100M in new capital

Hometap, a fintech company providing an alternative to traditional home equity lending, secured $100 million in new financing as it looks to expand its geographic reach.

The capital raise added Iconiq Capital as a new investor. Other participants in the new raise were current investors General Catalyst, G20, Pillar and American Family Ventures. Those four companies participated in a Series A round in April 2018 that raised $12 million, according to Crunchbase.

Hometap allows homeowners to access a percentage of their property's current value in exchange for an agreed upon percentage of its future value. The benefit, the company said, is that owners are able to tap into their home equity without the stress of monthly payments and interest they would incur if they added debt through an open-end or closed-end loan.

"We are thrilled to be investing with Hometap. With a highly transparent, customer-first approach, they are providing a valuable solution to the challenges faced by many homeowners," Nugi Jakobishvili, Iconic's chief investment officer, said in the press release.

In May, Hometap operated in six states, reaching 20% of the nation's homeowners. Its goal is to eventually reach 75% of homeowners.

"We've been working diligently toward our mission of making homeownership less stressful and more accessible for as many U.S. homeowners as possible, and we've had tremendous success thus far," said Hometap CEO Jeffrey Glass, CEO of Hometap. "But the fact remains that the vast majority of homeowners are currently feeling 'house rich and cash poor' and there's a lot more work to be done to make home equity investments an option that's available to everyone."

Another home equity alternative, Point, raised $122 million in new capital in March.

The market could be ripe for Hometap. A J.D. Power study released in March found that two-thirds of home equity line of credit borrowers that opened their account in the past two years considered an alternative product.

However, Hometap's product competes with first mortgages in today's environment. With interest rates remaining low, it makes that product more attractive to existing homeowners — even those that recently purchased their home — to tap their equity through a refinance.

According to a recent Black Knight report, American homeowners had $6.2 trillion of tapable equity in their homes at the end of the third quarter. Cash-out refinance transactions increased during the period as home equity line of credit rate offerings were coming in at an average of 2.9% higher than for the 30-year fixed product.

The mortgage vintage with the highest prepayment rate in October was 2018, at 3.82%, Black Knight said. Next was 2014 at 1.95%.

Meanwhile, HELOC balances fell 5% from one year prior during the third quarter. Aside from low mortgage rates, the increased availability of unsecured personal loans was also a cause, a New York Fed study pointed out.