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Home equity investment (HEI) contracts are best compared by modeling the dollars you receive and the lump sum you may owe—not by choosing the smallest advertised percentage or the phrase “no monthly payments.” Put each offer’s net proceeds, valuation rules, appreciation share, multipliers, caps, fees, exit triggers and funding risk into the same worksheet, then compare those results with a HELOC, home equity loan or cash-out refinance. The Consumer Financial Protection Bureau (CFPB) cautions that these are complex contracts without standardized disclosures, so the signed agreement and offer sheet control over any general description.
A home equity investment contract (also called a home equity agreement or shared-equity agreement) gives you cash now in exchange for a future lump-sum settlement tied partly to your home’s value. You generally still make your existing mortgage payment and pay property taxes, insurance, maintenance and repairs. The provider’s share is not a free advance: the settlement formula determines the economic cost.
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The CFPB says settlement commonly comes when you sell the home or when a 10- to 30-year term ends. A default on a senior mortgage, unpaid taxes or insurance, death, or another breach can also trigger payment. Depending on the agreement, you may need savings, a refinance, another loan, another contract or a sale to raise the money.
“Home equity contracts are complex financial contracts, and the current lack of standardized disclosures can make it difficult to understand them or compare them to other options,” the CFPB writes in its January 15, 2025 market overview.
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At a glance
| Name | Best for | Key spec | Checked |
|---|---|---|---|
| Home equity investment contract | Owners who need a lump sum and may not qualify for, or do not want, a scheduled payment to a new lender | Future settlement linked to home value; no scheduled payment to the provider, but existing ownership costs remain | November 2026 |
| HELOC | Owners who want reusable credit and can manage variable payments | Borrowing secured by the home with required interest and payments | November 2026 |
| Home equity loan | Owners who need a known lump sum and predictable amortizing payments | Second-lien loan with scheduled principal and interest payments | November 2026 |
| Cash-out refinance | Owners willing to replace the first mortgage to obtain cash | New mortgage replaces the old one; compare the new rate, term and closing costs | November 2026 |
| Reverse mortgage (where eligible) | Older homeowners evaluating payment flexibility and estate effects | Home-secured financing with specialized age, occupancy and counseling requirements | November 2026 |
What cash will you actually receive after fees?
Start with the gross advance, then subtract every charge taken from it. Your usable cash is not the amount printed in the marketing headline.
- Write down the gross investment. This is the amount the provider says it will pay before deductions.
- List the provider’s fee. The CFPB says processing fees are often 3% to 5% of the initial payment; that is a market observation, not a quote for your offer.
- Add third-party costs. Include appraisal or inspection, title and escrow, legal or notary work, recording and any other closing charge. Ask whether each is paid from proceeds or billed separately.
- Calculate net proceeds. Gross advance minus all deductions is the amount available for your purpose. Keep this number beside every later payoff calculation.
For scale, the CFPB describes a hypothetical $50,000 advance with a 4% provider fee and $2,000 in third-party costs. The illustration would leave $46,000 before any other charge; it is not a universal term. As a company-specific example, Hometap’s FAQ, accessed November 13, 2026, describes a 4.5% processing fee capped at $20,000 and says appraisal and certain signing costs can be deducted from proceeds. Verify the current fee schedule and the fee in your own offer rather than treating either example as a market standard.
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1Repair Windows errors before they cause bigger problems2Scan for outdated or missing drivers - takes under a minute3Clear out junk files and repair common Windows errorsDoes the provider share total home value or only appreciation?
Those formulas can produce very different settlements even when the quoted percentage looks similar. Have the provider show the calculation in dollars for a falling, flat, moderately rising and sharply rising home value.
Total-value share
Some contracts apply a percentage or multiplier to the home’s value at settlement. If the percentage applies to total value, the provider participates in value that existed before the investment as well as later appreciation. Confirm whether the calculation is based on gross value or is reduced by an approved mortgage balance, sale costs or other adjustments.
Appreciation-only share
Other agreements calculate the provider’s amount from the change between the starting and ending values, often adding the original advance or another contractual amount. Ask whether the share applies to all appreciation or only a defined portion, and whether a loss reduces what you owe.
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Multipliers and discounted starting values
A multiplier can make the provider’s economic share larger than the headline percentage. A contract may also set the starting value below the appraised value through a risk adjustment or discount. Both features increase the appreciation base or settlement relative to a simple “percentage of growth” calculation.
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Minimums, floors and other bounds
Ask whether the provider receives a minimum return even if the home is flat or falls, whether your payment can be less than the advance, and whether a maximum or floor applies after fees. Do not infer these terms from labels such as “shared appreciation.”
How are the starting and ending home values set?
Valuation rules can change the settlement as much as the percentage. Obtain the rules in writing before signing.
- Initial value: Is it based on an independent appraisal, an automated valuation model or another method? Is a discount or risk adjustment applied?
- Sale value: If you sell, does the contract use the contract price, an adjusted price, or another value when the sale is below market?
- No-sale settlement: At term end or another trigger, who orders the appraisal, who pays, and which appraisal standard applies?
- Disputes: Can you obtain a second opinion? Is there an arbitration or appeal process, and who bears the cost?
- Distressed sales: Ask what happens in a short sale, foreclosure, relocation sale or sale to a related party.
Some contracts credit homeowners for value-adding renovations; others do not. Request the adjustment formula, eligible work, required permits and receipts, notice deadlines and documentation standard. If an improvement credit is limited to an appraisal difference, ask how depreciation, labor and market movement are separated.
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What do caps and the term do to the payoff?
A cap limits how quickly the settlement can grow, but it does not eliminate fees, multipliers or a discounted starting value. The CFPB reported that several market contracts had caps around 18% to 20%, compounded monthly, in its 2024 market description. That is historical context, not a current universal term.
Model the contract at each plausible exit year, such as year 3, year 5, year 10 and the contractual maturity date. Ask for the exact compounding convention, the date the cap starts, whether it applies to the provider’s return or the total settlement, and whether an early payoff uses a separate formula. A cap may matter only in high-appreciation scenarios; in a low-growth scenario, the un-capped formula, minimum return or fees may determine the result.
Which events require payment, and how will you fund it?
Make a trigger list, not just a maturity-date note. Confirm the contract’s treatment of:
- Sale, including a sale before the stated term;
- Term expiration when you still own the home;
- Refinancing or obtaining a new second lien;
- Default on the first mortgage or another senior lien;
- Unpaid property taxes, insurance or required maintenance;
- Transfer to a trust, divorce, bankruptcy or change in occupancy;
- Death of an owner and the time heirs receive to settle;
- Partial repayment, which some agreements restrict or prohibit.
Then write a funding plan. A future sale is not the only possibility: you might save cash, refinance, use a home-equity loan, obtain another contract or sell. The CFPB warns that a homeowner who cannot make the settlement may be forced to sell and could face foreclosure. Ask whether provider consent is needed for refinancing and what happens if a lender will not approve enough to cover the payoff.
How do you model the real cost?
Use one spreadsheet for every offer. Keep the assumptions visible and run at least four home-value paths: decline, flat, moderate growth and strong growth. Include several exit years because the effective cost can change sharply over time.
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| Input | What to enter | Why it matters |
|---|---|---|
| Gross advance | Contractual payment before deductions | Starting point for fees and settlement formulas |
| Net proceeds | Gross advance minus provider and third-party charges | Measures cash actually available |
| Starting value | Appraised or otherwise defined value, including any discount | Sets the appreciation base or total-value share |
| Ending value | Sale price or contract appraisal under each scenario | Drives the provider’s settlement |
| Share and multiplier | Every percentage, factor, floor and minimum return | Headline percentages are not enough |
| Cap | Rate, compounding method and start date | May limit high-growth outcomes |
| Exit year | Each likely sale, refinance or maturity year | Shows time sensitivity and early-payoff economics |
| Improvement credit | Eligible cost or value adjustment and proof required | Prevents you from assuming renovations are protected |
For each row, calculate the settlement, subtract any payoff costs, and compare that amount with the net proceeds received. Also calculate an effective cost ratio: (settlement minus net proceeds) divided by net proceeds. It is not an annual percentage rate and should not be presented as one; it is simply a way to compare the same assumptions across offers. Add a separate line for your mortgage balance and selling costs so you can see what, if anything, remains for you.
The CFPB’s 2025 report gives hypothetical year-10 outcomes from $94,074 to $215,892 for a $50,000 payment under different home-price paths and specified contract assumptions. Those figures demonstrate the range a formula can create; they are not forecasts, quotes or expected results for your home.
How does an HEI compare with a HELOC, home equity loan or refinance?
Compare the timing and risk of every dollar, not just whether a new monthly payment appears.
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| Option | Cash-flow pattern | Key comparison questions |
|---|---|---|
| HEI contract | Usually no scheduled payment to the provider; one large settlement at a trigger | How much future value is surrendered? Can you fund the lump sum? Are partial payoffs and refinancing allowed? |
| HELOC | Draw-and-repay credit with required interest payments; terms and rates depend on the lender | Can you handle variable payments? Is the available limit sufficient? What happens if the line is frozen or the rate rises? |
| Home equity loan | Lump sum followed by scheduled principal and interest payments | Is the payment affordable? Does the fixed schedule cost less than the modeled HEI settlement? |
| Cash-out refinance | New first mortgage replaces the existing one and provides cash | What happens to the existing mortgage rate, term, closing costs and total interest? |
| Reverse mortgage | Specialized home-secured financing for eligible older homeowners | What are the age, occupancy, counseling, insurance and estate requirements, and how does the balance affect heirs? |
Include eligibility, credit and income requirements, the length of time you expect to stay, control over renovations and sale timing, ownership implications, and risks to heirs. An HEI can preserve an existing low mortgage rate and avoid a scheduled payment to the provider, but it exchanges that benefit for uncertain future value and a large payoff obligation. A loan creates a visible payment and interest cost, but its balance is generally easier to forecast. Use the same home-value and time assumptions for every alternative.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What should you request before signing?
- Ask for the complete contract, all schedules, disclosures and fee sheet—not a summary page.
- Request dollar examples for a loss, no change, moderate appreciation and rapid appreciation at multiple exit years.
- Have the provider identify the exact clause for the starting value, ending value, multiplier, cap, minimum, renovation credit and sale adjustment.
- Confirm who chooses and pays for appraisals, what happens if appraisals conflict, and how a distressed sale is treated.
- Obtain a written list of every trigger, notice period, consent requirement and partial-payoff restriction.
- Calculate net proceeds and your modeled settlement independently; do not rely on a headline percentage.
- Ask a qualified real-estate or consumer-finance attorney, housing counselor or tax professional to review issues outside your expertise. Keep written answers with the contract.
Common comparison mistakes
- Comparing gross advances: A larger headline payment can produce less usable cash after fees.
- Treating “appreciation share” as a standard term: It may mean total value, appreciation only, or a multiplied share.
- Ignoring the baseline discount: A lower contractual starting value enlarges measured appreciation.
- Assuming a cap guarantees affordability: A cap may not apply to fees, minimums or a different part of the formula.
- Leaving renovations undocumented: Without the required records, an improvement credit may be unavailable.
- Planning only for sale: Death, default, taxes, insurance and maturity can trigger payment earlier.
- Ignoring heirs: A family member may need to refinance or sell quickly to settle the contract.
- Comparing unlike time periods: A five-year HEI payoff and a 15-year loan need the same exit-year analysis.
What is the practical decision rule?
Proceed only when you can explain, in your own worksheet, how the settlement changes if your home falls, stays flat or rises sharply; how much cash you receive after every fee; and where the payoff money will come from. If the provider will not supply clear dollar examples or the valuation and dispute rules remain vague, you cannot make a reliable comparison. In that case, pause and obtain independent advice or evaluate a conventional borrowing option with a payment you can afford.
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Frequently Asked Questions
Can I sell my house before the home equity contract term ends?
Usually a sale is a settlement trigger, but the contract may apply special sale-price rules, require notice or impose an early-payoff calculation. Ask for the exact net-proceeds example for a sale in each of the first several years.
What happens if the final appraisal is higher than I think it should be?
The agreement should state who selects the appraiser, the valuation standard, the dispute process and who pays for a second opinion. Preserve comparable sales, permits and renovation records before the settlement appraisal occurs.
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Are home equity investment contracts available in every state?
Availability, eligibility and contract terms vary by provider and state, and can change over time. Verify that the specific offer is authorized and available where the property is located rather than relying on a national advertisement.
Does an HEI affect what my heirs inherit?
Yes. A death-related trigger can require the estate or heirs to pay the settlement, refinance or sell the property. Read the notice and cure periods and discuss a funding plan with anyone who may inherit the home.
