Key Takeaways
- A home equity agreement (HEA) gives you a lump sum in exchange for a share of your home’s future value, with no monthly payments required.
- A HELOC is a revolving credit line with current average rates around 7.25%, requiring monthly interest payments but letting you keep all your home’s appreciation.
- HEAs work best for homeowners who can’t qualify for traditional financing or need to avoid monthly payments, while HELOCs typically cost less over time for those who qualify.
- The true cost of an HEA depends on how much your home appreciates—if values rise significantly, you could pay far more than with a HELOC.
- Both products use your home as collateral and carry foreclosure risk if you can’t meet the terms.
- HEAs have more flexible credit requirements (some accept scores as low as 500), while HELOCs typically require scores of 620 or higher.
If you’re sitting on significant home equity and need cash, you’ve probably considered a home equity line of credit (HELOC). But there’s another option that’s been gaining attention: the home equity agreement, or HEA.
These two products couldn’t be more different in how they work, what they cost, and who they’re designed for. A HELOC is a traditional loan with monthly payments and interest charges. An HEA isn’t technically a loan at all—it’s an investment agreement where you trade a share of your home’s future value for cash today.
With American homeowners sitting on a record $36 trillion in home equity, understanding both options has never been more important. Here’s what you need to know to make the right choice for your situation.
What Is a Home Equity Agreement?
A home equity agreement (also called a home equity investment or shared equity agreement) is a financial arrangement where an investment company gives you a lump sum of cash in exchange for a percentage of your home’s future value. Unlike a loan, there are no monthly payments and no interest charges.
Here’s how the process typically works:
First, you apply with an HEA provider like Hometap, Unlock, or Point. The company orders an appraisal to determine your home’s current market value. Many providers then apply a “risk adjustment” that reduces that value by 2.75% to 20%, depending on the company and your situation.
Based on this adjusted value, you receive a lump sum—typically 10% to 30% of your home’s current value. In exchange, you agree to share a percentage of your home’s future value (or future appreciation) with the investor.
The agreement runs for a set term, usually 10 to 30 years. During this time, you continue living in your home and are responsible for all maintenance, property taxes, and insurance. The company places a lien on your property to secure their investment.
When the term ends—or when you sell, refinance, or choose to buy out the agreement early—you repay the company. What you owe depends on your home’s value at that time, which makes the final cost unpredictable.
What Is a HELOC?
A home equity line of credit is a revolving credit line secured by your home, similar to a credit card but with much lower interest rates. You’re approved for a maximum credit limit based on your equity, credit score, and income, then you can borrow as much or as little as you need up to that limit.
HELOCs have two phases. During the draw period (typically 5 to 10 years), you can borrow from your credit line and make interest-only payments on what you’ve used. After the draw period ends, you enter the repayment period (usually 10 to 20 years) where you pay back both principal and interest.
Current average HELOC rates sit around 7.25%, according to Bankrate data from January 2026. Most HELOCs have variable rates tied to the prime rate, which means your rate can increase or decrease over time based on Federal Reserve policy.
Unlike an HEA, a HELOC is clearly a loan. You borrow money, pay interest, and make monthly payments (use our HELOC Calculator to learn more about borrowing power and monthly payments). The advantage is predictability—you know exactly what your costs will be based on your interest rate and how much you borrow.
Side-by-Side Comparison
The fundamental differences between these products become clear when you compare them directly:
Product type: A HELOC is a loan. An HEA is an investment agreement—you’re essentially selling a stake in your home’s future value.
Monthly payments: HELOCs require monthly interest payments on your balance. HEAs require no monthly payments at all.
Interest: HELOCs charge interest (currently around 7.25% on average). HEAs don’t charge interest, but you give up a share of your home’s appreciation instead.
How you access funds: A HELOC gives you a credit line to draw from as needed. An HEA provides a one-time lump sum.
Repayment: You repay a HELOC through monthly payments over 10 to 20 years. You repay an HEA with a single lump sum when you sell, refinance, or reach the end of the term.
Cost predictability: With a HELOC, you know your costs based on the interest rate. With an HEA, your final cost depends on how much your home appreciates—something nobody can predict.
Impact on credit: HELOC payments are reported to credit bureaus, which can help build credit if you pay on time. HEAs don’t affect your credit score since they’re not loans.
Ownership: With both products, you retain full ownership of your home. However, an HEA investor has a financial stake in your home’s future value.
True Cost Comparison: Real Numbers
This is where the decision gets serious. The Consumer Financial Protection Bureau (CFPB) found that home equity agreements almost always cost more than traditional home equity products. Let’s see why with real examples.
HELOC scenario: You borrow $50,000 at 7.5% interest. During a 10-year draw period with interest-only payments, you’d pay about $313 per month, or roughly $37,500 in total interest if you never paid down principal. Your total cost: $87,500 (the $50,000 principal plus interest).
HEA scenario: You receive $50,000 in exchange for a share of your home’s future value. According to the CFPB’s analysis of one provider’s calculator, after just three years, you’d owe between $68,045 and $71,538 depending on market conditions. After 10 years with 5% annual appreciation, one example showed a repayment amount of $179,085.
The CFPB’s analysis revealed that HEA customers can pay the equivalent of 14% to 22% annual interest in many scenarios—far higher than current HELOC rates. Over a 10-year period, you might pay double or triple what a traditional loan would cost.
That said, if your home depreciates, you could actually owe less with an HEA than you received. Most providers share in both gains and losses. But given that home values have historically trended upward, betting on depreciation is a risky strategy.
Qualification Requirements
One of the biggest differences between these products is who can qualify.
HELOC requirements are similar to other mortgage products. You’ll typically need a credit score of at least 620, though most lenders prefer 700 or higher for the best rates. You’ll need to document your income and employment, maintain a debt-to-income ratio under 43% to 50%, and have at least 15% to 20% equity in your home after the HELOC.
HEA requirements are notably more flexible. Many providers accept credit scores as low as 500 to 600. There are often no income requirements or debt-to-income limits. You’ll need at least 20% to 25% equity in your home, and properties must typically be owner-occupied single-family homes worth at least $250,000.
This flexibility is a double-edged sword. HEA providers can afford to be lenient because they’re not lending you money—they’re investing in your home’s future value. The risk shifts from whether you’ll make monthly payments to whether your home will appreciate.
Pros and Cons of Home Equity Agreements
The advantages of an HEA include no monthly payments, which preserves your monthly cash flow and doesn’t increase your debt-to-income ratio. The flexible qualification requirements help homeowners who can’t get approved for traditional loans. If your home loses value, you may owe less than you received. And funds can be used for any purpose without restrictions.
The disadvantages are significant. You’re giving up a share of your home’s future appreciation, which could be substantial. The total cost is unpredictable and often much higher than traditional financing. The repayment amount comes due in one large lump sum—if you don’t sell your home, you’ll need significant cash or a refinance to settle up. The market is less regulated than traditional lending, with terms varying widely between providers. And some agreements restrict what you can do with your property during the term.
Pros and Cons of HELOCs
The advantages of a HELOC include lower overall costs in most scenarios, predictable interest-based payments, flexibility to borrow only what you need, potential tax deductibility of interest if funds are used for home improvements, and the ability to build credit through on-time payments. You also keep all of your home’s appreciation.
The disadvantages include required monthly payments that affect your budget and DTI ratio, stricter qualification requirements (credit score, income verification, debt limits), variable interest rates that can increase over time, and the risk that your lender could freeze or reduce your credit line if home values drop significantly.
When a Home Equity Agreement Makes Sense
An HEA might be the right choice if you have significant equity but can’t qualify for a HELOC or home equity loan due to credit issues, irregular income, or high existing debt. It may also work if you absolutely cannot add monthly payments to your budget, you’re planning to sell your home within the next few years anyway, you believe your home’s appreciation will be modest, or you need cash quickly and other options aren’t available.
HEAs are often marketed to homeowners who are “equity rich but cash poor”—people with valuable homes but limited income or credit challenges. If that describes your situation and you’ve exhausted other options, an HEA might provide needed flexibility.
When a HELOC Is the Better Choice
For most homeowners who qualify, a HELOC is typically the better financial choice. Consider a HELOC if you have good credit (680+) and can document your income, you can comfortably manage monthly payments, you want to keep all of your home’s future appreciation, you prefer predictable, transparent costs, you want the flexibility to borrow and repay multiple times, or you’re planning to stay in your home long-term.
With current HELOC rates around 7.25% and the potential for further decreases as the Federal Reserve continues its rate-cutting cycle, traditional home equity borrowing is more attractive than it’s been in years.
Regulatory Concerns to Know About
Before choosing an HEA, be aware that these products face increasing regulatory scrutiny. Massachusetts Attorney General Andrea Campbell sued Hometap in 2024, arguing these products function as illegal reverse mortgages without proper consumer protections. Connecticut, Illinois, and Maryland have passed laws treating home equity agreements as loans subject to consumer lending regulations.
The CFPB issued a detailed report in January 2025 outlining concerns about these products’ complexity, costs, and risks to consumers. While no federal regulations have been implemented yet, the bureau is clearly monitoring the market.
This regulatory uncertainty doesn’t mean HEAs are bad products, but it does suggest you should carefully review any agreement with a lawyer before signing and understand that the rules governing these products may change during your term.
Frequently Asked Questions
No. A reverse mortgage is available only to homeowners 62 and older and provides income payments over time. An HEA provides a lump sum to homeowners of any age who meet equity requirements. However, some regulators argue that HEAs function similarly to reverse mortgages and should be subject to similar consumer protections.
Most HEAs allow early repayment without prepayment penalties, but you’ll still owe the company’s share based on your home’s current value. You cannot make partial payments—it’s all or nothing. Some providers restrict payoffs during the first 6 to 12 months.
Your heirs typically have the option to assume the agreement and continue living in the home, or settle the agreement by selling the property or paying off the investor’s share. The agreement doesn’t simply disappear—the company’s lien remains on the property.
No. Since an HEA isn’t a loan, it won’t appear on your credit report and won’t affect your credit score positively or negatively. However, if you fail to meet the agreement’s terms and face foreclosure, that would impact your credit.
Most providers offer 10% to 30% of your home’s current value, depending on your equity, the company’s risk assessment, and your location. Some providers like Hometap offer investments ranging from $15,000 to $600,000.
It depends. Both products place liens on your home, and your primary mortgage lender may have restrictions. Some mortgage agreements prohibit additional liens. You’ll need to check with your mortgage lender and any potential HEA or HELOC provider.
Most HEA providers share in both appreciation and depreciation. If your home is worth less when you settle than when you started, you may owe less than you originally received. However, the specifics depend on your agreement’s terms.
HELOC interest may be tax deductible if you use the funds for home improvements that substantially improve your property. Interest on funds used for other purposes (debt consolidation, vacations, etc.) is generally not deductible. Consult a tax professional for guidance on your specific situation.
Most HELOC lenders require a minimum credit score of 620, with scores of 700 or higher needed for the best rates. HEA providers are more flexible—companies like Point, Unlock, and Splitero advertise acceptance of scores as low as 500, while Hometap and Unison typically look for 600 or higher.
HELOCs typically take 2 to 6 weeks to close, similar to a mortgage. HEAs often move faster—some providers advertise funding in as little as 2 to 3 weeks. If speed is critical, an HEA may have a slight advantage.
Yes, many homeowners use a HELOC, home equity loan, or cash-out refinance to settle their HEA before the term ends. This can be a good strategy if you’ve improved your credit and income since taking out the HEA and now qualify for traditional financing at a lower overall cost.
If you qualify, a HELOC is typically better for debt consolidation because the costs are more predictable and usually lower. An HEA could make sense if you can’t qualify for a HELOC and the debt you’re consolidating has very high interest rates (like credit cards at 20%+), but run the numbers carefully before proceeding.
Reader Interactions