Home Equity Investments: What They Are, Pros and Cons, and Costs

Written by: Timothy Moore, CFEI, Amanda Hankel

Reviewed by: Michael Menninger, CFP®

A home equity investment (HEI) lets you tap your home’s equity without monthly payments—but that convenience can come at a steep cost. Instead of borrowing as you would with a home equity loan or HELOC, you receive a lump sum (sometimes called a home equity investment loan) in exchange for a share of your home’s future value.

That tradeoff can make HEIs appealing if you need cash but can’t qualify for traditional financing or want to avoid another monthly bill. But if your home increases in value, you could repay far more than you received. This guide breaks down how HEIs work, what they can cost, and when they might—or might not—make sense.

What is a home equity investment (HEI)?

A home equity investment (HEI) is a way to access your home’s equity without taking out a traditional installment loan. Instead of making fixed monthly payments, you receive a lump sum upfront in exchange for sharing a percentage of your home’s future value.

You repay the investment later—typically when you sell your home, refinance, or reach the end of the term—based on how much your home is worth at that time. If your home increases in value, you’ll likely owe more than you received. If it decreases, you may owe less.

Home equity investments are also known as home equity agreements (HEAs), home equity sharing agreements (HESAs), or home equity contracts. While they are sometimes referred to as “home equity investment loans” or “HEI loans,” they work differently from traditional home equity loans or HELOCs because repayment is tied to your home’s value rather than a fixed payment schedule.

Are home equity investments a good idea?

Home equity investments can be a good option in specific situations—but for many homeowners, they come with significant long-term tradeoffs.

When a home equity investment might make sense

You need cash but can’t qualify for a home equity loan or HELO
You want to avoid taking on another monthly payment
Your income is variable or hard to document

Because repayment is tied to your home’s future value rather than a fixed payment schedule, HEIs can offer more flexibility in the short term.

When a home equity investment may not be the best choice

You expect your home to increase in value
You qualify for lower-cost options like a HELOC or home equity loan
You want to preserve as much of your home equity as possible

If your home appreciates, you could end up repaying substantially more than you received—sometimes two to four times the original amount depending on the agreement and market conditions.

Home equity investments are often best viewed as a niche solution rather than a first choice. For homeowners with strong credit and stable income, traditional home equity products are usually more cost-effective over time.

"A good candidate for a home equity investment might be an elderly homeowner who needs cash and would compare an HEI to a reverse mortgage. Another person who could be a good candidate is someone riddled with credit card debt and a low credit score. An HEI could help them begin to save and invest." - Michael Menninger, CFP®

How a home equity investment works

A home equity investment lets you access cash today in exchange for sharing a portion of your home’s future value. While terms vary by company, the process generally follows a few key steps:

1. Determine your home’s value

The company evaluates your home—often through an appraisal—to estimate its current market value. In some cases, it may apply a conservative adjustment to reduce risk.

2. Receive an offer

You’ll get an offer that outlines:

The lump sum you’ll receive
The percentage of your home’s future value you’ll share
The length of the agreement (often 10 to 30 years)

3. Close and receive funds

If you accept, you’ll sign an agreement and pay closing costs, which may include origination fees, appraisal fees, and other third-party expenses. These are often deducted from your funding amount.

4. Use the funds

You receive your money upfront and can typically use it for any purpose, such as home improvements, debt consolidation, or other expenses.

5. Repay the investment

You’ll repay the investment at the end of the term—or earlier if you sell, refinance, or choose to buy out the investor. The amount you owe is based on your home’s value at that time, not a fixed payment schedule.

* Example: If you receive $30,000 in exchange for 20% of your home’s future value and your home is worth $400,000 when you repay, your payment would be based on that value—not the original amount you received.

What a home equity investment can really cost

The biggest tradeoff with a home equity investment is how much you may have to repay later—especially if your home increases in value.

Because repayment is tied to your home’s future value, the total cost isn’t fixed. In many cases, homeowners end up repaying two to four times the amount they initially received.

Here’s a simple example: Let’s say you receive $30,000 in exchange for 20% of your home’s future value.

If your home grows at a modest rate, you could owe around $80,000 after 10 years
If your home appreciates more quickly, that repayment could exceed $120,000+
Even if your home loses value, you may still repay more than you received

The key takeaway: the more your home increases in value, the more expensive the investment becomes.

How repayment changes based on your home’s value

To better understand how costs can vary, here are three simplified scenarios based on a $300,000 home and a $30,000 investment.

Average appreciation (3% annually)

After 10 years, your home would be worth about $403,000. Your repayment could be roughly $80,000+, or about 2.7x what you received.

High appreciation (8% annually)

After 10 years, your home could reach nearly $650,000.Your repayment may exceed $129,000, or more than 4x the original amount.

Depreciation (-3% annually)

If your home declines in value, your repayment could drop to around $33,000. While that’s lower, you still repay more than you received—and your home has lost significant value.

How HEI costs compare to a home equity loan

To put this in perspective, a $30,000 home equity loan at around 8.5% interest would cost roughly $44,000 over 10 years.

That’s significantly less than what you might repay with a home equity investment if your home increases in value.

Why home equity investments can cost more

Home equity investments often end up being more expensive than traditional options because:

Your repayment isn’t limited by a fixed interest rate
You’re sharing in your home’s full future value—not just borrowing against it
Fees and valuation adjustments can reduce how much cash you actually receive upfront

What this means if you’re considering an HEI loan

A home equity investment can provide short-term flexibility, especially if you want to avoid monthly payments. But it shifts more of the cost into the future—and that cost can grow quickly if your home appreciates.

Before moving forward, it’s important to weigh not just how much cash you need today, but how much of your home’s future value you’re willing to give up.

Home equity investment pros and cons

Home equity investments can offer flexibility that traditional home equity products don’t—but that flexibility often comes with tradeoffs. Here’s a closer look at the key benefits and drawbacks.

Pros

No required monthly payments
Repayment is deferred until you sell, refinance, or reach the end of the term
More flexible qualification requirements
Lower credit score and income requirements than many HELOCs or home equity loans
Access to a lump sum upfront
Funds can typically be used for any purpose
Shared downside risk
If your home loses value, the investor may receive a smaller repayment

Cons

Potentially high long-term cost
If your home appreciates, you could repay two to four times what you received
Loss of future home equity
You’re giving up a portion of your home’s upside, which can significantly reduce your long-term wealth
Upfront fees and reduced funding
Origination fees, appraisal costs, and other expenses can cut into your payout
High equity requirements
Many companies require at least 25%–30% equity to qualify
Limited availability
Not all providers operate in every state
Repayment may require a major financial decision
You may need to sell your home or refinance to buy out the investor

Home equity investments can be helpful in specific situations—especially if you need cash and don’t have access to other options. But because of their potential cost and impact on your future equity, they’re often best considered after exploring lower-cost alternatives.

Home equity investment vs. home equity loan vs. HELOC

Home equity investments, home equity loans, and HELOCs all let you tap your home’s equity—but they work very differently. The right option depends on your financial situation, how you prefer to repay, and how much risk you’re willing to take on.

When a home equity investment may make more sense

An HEI can be worth considering if:

You can’t qualify for a home equity loan or HELOC due to credit or income
You want to avoid taking on another monthly payment
Your income is variable or difficult to document

Because repayment isn’t tied to a fixed schedule, HEIs can offer more flexibility in the short term.

When a home equity loan or HELOC is usually the better fit

A traditional home equity product may be a stronger option if:

You qualify for competitive interest rates
You expect your home’s value to increase
You want to preserve as much of your home equity as possible
You’re comfortable making monthly payments

In many cases, home equity loans and HELOCs end up being more cost-effective over time—especially if your home appreciates.

What about using home equity for investing?

Some homeowners look to tap their equity to fund real estate or other investments. This is more commonly done with a home equity loan or HELOC, but it’s important to understand the risks.

Using borrowed funds to invest can amplify both gains and losses. And because home equity investments are tied to your home’s value rather than a fixed repayment structure, they’re generally not the most straightforward option for investment purposes.

How to think about your options

Each of these products solves a different problem:

Home equity investments prioritize accessibility, especially for borrowers who don’t qualify for traditional financing
Home equity loans prioritize predictability, with fixed payments and a clear payoff timeline
HELOCs prioritize flexibility over time, allowing you to borrow as needed

For many homeowners, the deciding factor comes down to cost vs. convenience. If you can qualify for a home equity loan or HELOC, those options will often preserve more of your home’s long-term value. If not, a home equity investment may still provide a path to access cash—just with different tradeoffs to consider.

Home equity investment companies

If you’re considering a home equity investment, choosing the right company is just as important as deciding whether the product fits your needs. Terms can vary widely between providers, including how much funding you receive, how your repayment is calculated, and what fees you’ll pay upfront.

Because of those differences, it’s worth comparing multiple options before moving forward—especially if you’re trying to minimize how much of your home’s future value you give up.

* For a deeper breakdown of top providers, see our guide to the best home equity sharing agreement companies.

FAQ

What is a home equity investment loan?

A “home equity investment loan” typically refers to a home equity investment (HEI), though the term can be confusing. Unlike a traditional loan with fixed payments and interest, repayment is based on your home’s future value and the terms of your agreement.

Is a home equity investment the same as a loan?

Not exactly. While both provide access to cash using your home’s equity, they work differently. With a traditional home equity loan or HELOC, you repay what you borrow with interest over time. With a home equity investment, repayment is based on your home’s future value, which can make the total cost less predictable.

How does a home equity investment repayment work?

Repayment typically happens when you sell your home, refinance, or reach the end of the agreement term. The amount you owe is based on your home’s value at that time and the percentage you agreed to share—not a fixed loan balance.

Can you repay a home equity investment early?

In many cases, yes. Some companies allow you to buy out the investment before the term ends, though this usually requires a new home valuation. Depending on the provider, you may also have the option to make partial payments to reduce your final obligation.

What happens if your home loses value?

If your home decreases in value, the amount you owe may also decrease. However, you may still repay more than the original amount you received, depending on the terms of your agreement.

Do home equity investments affect your credit?

They typically don’t affect your credit in the same way as traditional loans, since there are usually no required monthly payments. However, your credit may still be considered during the application process, and failing to meet the terms of your agreement could have financial consequences.

Are home equity investments a good idea?

They can be helpful in certain situations—particularly if you need cash and don’t qualify for traditional financing or want to avoid monthly payments. However, because repayment depends on your home’s future value, they can become expensive over time if your home appreciates.

Can you use a home equity investment for any purpose?

In most cases, yes. Funds are typically provided as a lump sum and can be used for expenses like home improvements, debt consolidation, or other financial needs.

What’s the difference between a home equity investment and a HELOC?

A HELOC is a line of credit that you repay over time with interest, often with flexible borrowing during a draw period. A home equity investment doesn’t have a traditional repayment schedule—instead, what you owe depends on your home’s value when you repay.