What Is Fraction?
Fraction is a financial technology company with a digital lending platform designed to help homeowners access their home equity in a more flexible way. They offer their services to homeowners in Washington State, Ontario, and British Columbia, Canada.
How Does a Fraction Mortgage Work?
Unlike typical home equity lines of credit or mortgages, Fraction does not require you to make monthly payments. You must pay off the loan at the end of the five-year term, but how you pay it off is up to you. Fraction also determines the interest rate of your loan based on the appreciation of your property rather than market interest rates. If your home’s appreciation rate falls, your interest rate will fall, too, as low as Fraction’s minimum rate. And if your home’s rate of appreciation goes up, so will your interest rate, but it will not exceed Fraction’s interest cap.
What are the Benefits of Fraction?
Fraction offers several benefits to its customers.
- No Monthly Payments: With traditional mortgages, borrowers must make monthly payments. Late and missed payments result in fees and penalties. With a Fraction mortgage, monthly payments aren’t required.
- Access Up to $1.5 Million: You can borrow up to 41% of your home’s equity, up to $1.5 million.
- Option to Renew Your Loan: You can pay off your Fraction mortgage or renew it at the end of your five-year term. The renewal process requires you to go through the application process again.
- Transparency Regarding Fees: Fraction carefully details the costs of applying for and receiving a loan through their platform. You won’t encounter any surprises regarding fees.
- Qualify for Their Lowest Interest Rate: Because Fraction uses your home’s appreciation to determine your loan’s interest rate, you will receive their lowest interest rate unless your home goes up in value. They also have a cap, so your interest rate won’t exceed their maximum level.
What are the Downsides of Fraction?
A Fraction mortgage offers flexibility that traditional home equity lines of credit do not, but there are tradeoffs to consider.
- Fully Paid-Off House Requirement: Fraction requires a first-lien position on your home. This means you must fully own your house to take out a loan from Fraction. If you have adequate equity, you can use your Fraction loan to pay off your mortgage.
- Potential for Overall Higher Costs: If your home value increases during the loan term, you may pay more than you would with a traditional HELOC.
- Limited Availability: Fraction’s loan offering is only available in British Columbia, Ontario, and Washington State.
How Fraction Stacks Up against Other Mortgage Lenders
Fraction offers homeowners a unique way to tap into their home equity. It allows borrowers to access their home’s equity without committing to monthly payments. You have access to your home’s equity for an 18-month draw period. During that time, you can pay it down and reuse the line of credit as often as you like.
Is Fraction Right for You?
If you have paid off at least 59% of your home mortgage, and you’re finding it difficult to qualify for a home equity line of credit through a traditional bank, then Fraction may be a good option. Fraction is also a good choice for people who need more control and flexibility regarding monthly cash flow.
Getting Started with Fraction
Start with an initial application. During this step, you’ll learn how much equity you can access from your home. This step is free and doesn’t affect your credit score. Fraction will request information about your finances and your home.
If you choose to move forward, the next step is approval. In this step, you’ll have your home appraised (at your cost), and Fraction will run a full credit report. Then, based on its findings, Fraction will determine how much you qualify for.
Once you’re approved, Fraction will release your funds in ten days or less.
You can use your cash however you choose. You can pay back the loan on whatever schedule works best for you. Then, at the end of your five-year term, you can pay off the remaining balance plus the interest or refinance with Fraction for another five years.