Canadian-based alternative HELOC provider, Fraction, enters US

Homeowners who want to sell a stake of their property to tap their equity could soon have another option, with the entry of Canadian company Fraction into the U.S. market.

Based in Vancouver, British Columbia, Fraction is offering homeowners in Washington state a product that it describes as a first-lien home equity line of credit (HELOC). Homeowners can cash out up to 50 percent of their home’s equity, and make no monthly payments for up to 10 years. When the loan term ends, or the homeowner wants to sell their house, Fraction gets paid based on the appreciated growth of the home.

Hayden James

“Fraction’s HELOC is the innovative and tech-forward loan option that American homeowners need to live and age well, giving them access to fairer alternatives for securing investment capital or solving the problem of being house rich but cash poor,” Fraction Co-Founder and CEO Hayden James said in a statement. “We’re excited to expand into the U.S. and Washington is an ideal first state for our roll out given its adjacency to the Canadian market.”

Fraction, which launched in Canada in February 2021 and announced a $16 million Series A funding round in October, said it plans to launch in additional U.S. states by the end of 2022. In addition to its Vancouver headquarters, Fraction has offices in Berkeley, California and Toronto, Ontario.

In the U.S., Fraction will face competition from the likes of Hometap, Knock, Noah, Patch Homes, Point and Unison.

Hometap, which announced $60 million in new funding in December, is available in 15 states: Arizona, California, Florida, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Virginia and Washington.

Last fall, Point announced that it had partnered with housing finance company Redwood Trust Inc. to issue $146 million in asset-backed securities backed entirely by residential home equity investment (“HEI”) agreements. The companies proclaimed this was the first such deal of its kind.

Fraction says clients have used its first lien HELOC for debt consolidation, paying down their existing mortgage, home improvement and to help their children purchase their first home.

The Fraction HELOC must be the first lien on a property, meaning homeowners must pay off their existing mortgage to take advantage of it. The loan is available in amounts ranging from $50,000 to $1.5 million.

To qualify, homeowners must pay for third-party appraisers and inspectors chosen by Fraction, and obtain independent legal advice. Fraction charges a fee equal to 2.5 percent of the initial loan amount, and homeowners must also pay conveyance and title insurance costs.

The interest rate on the Fraction HELOC is based on the home’s appreciation, as determined by the Zillow Home Value Index, with a minimum rate of 3.49 percent (3.91 percent APR), and a maximum rate capped at 7.99 percent (8.42 percent APR) for a loan with a five-year term.

Once the five-year loan term is up, homeowners can renew their agreement with Fraction, or buy the company’s interest in the home back at any time.