Home Equity Investment (HEI)

A home equity investment is a financial contract in which a homeowner receives an upfront cash payment from a company and, in exchange, must make a single repayment in the future that depends partly on the home's value at that time. The Consumer Financial Protection Bureau, which studied the market in a January 2025 report, calls the product a home equity contract and describes it as one in which "homeowners get an upfront payment from a company and, in exchange, must repay a single lump sum repayment in the future that is based, in part, on the home's value." The same report notes the contracts "are often called 'home equity investments' (HEIs), 'home equity agreements,' or 'shared equity agreements,'" and Washington's financial regulator uses "home equity sharing agreement." They are names for one product.

The homeowner keeps the right to live in the home and keeps every ongoing cost of owning it, including property taxes, insurance, maintenance and any mortgage. Repayment is due at the end of the term, usually 10 to 30 years, or sooner on a triggering event such as a sale.

How the repayment is calculated. Each company has its own formula, but the CFPB found that all of them "consider the upfront payment to the consumer, the starting and ending home values, and a multiplier." In the report's example a homeowner receives 10% of the home's value and must repay the lesser of 20% of the home's value at settlement (a 2x multiplier) or a capped amount equivalent to 18% annual interest on the payment. Because of the multiplier, "the company would double their money before factoring in any home price appreciation," and the home "would have to drop by more than 50% in value before the company lost money." Some companies instead discount the starting value, setting it, for example, 25% below the appraisal so the company comes out ahead unless prices fall by more than that. Rate caps, marketed as homeowner protection, still let the amount owed grow at about 19.5% to 22% a year under many contracts, the CFPB reported. Processing fees, "often 3-5% of the initial payment," are taken out of the cash the homeowner receives.

What the marketing says and what the contract does. The CFPB found that companies "often claim that home equity contracts are 'not a loan,' have 'no interest,' and involve 'no debt,'" and that advertisements emphasize no monthly payments and no income or credit requirements. The absence of a monthly payment is real. What it hides is that the whole cost arrives at once, in an amount the homeowner cannot know in advance, and that the obligations of ownership continue throughout: a homeowner who fails to maintain the property to the contract's standard can owe more at payoff. The report's conclusion is plain: "Home equity contracts are expensive compared to other home-secured financing options."

The lien and the exit. The company records a lien on the property, just as a mortgage lender does, which the CFPB notes can limit a later refinance or new borrowing against the home. In the securitizations the CFPB reviewed, roughly 89% to 95% of customers also had a first mortgage, which sat ahead of the home equity contract. At the end of the term the homeowner must pay the full settlement amount. Someone who wants to stay in the home has to find the cash or new financing to do it, and the CFPB warned that "Homeowners who cannot pay the full settlement amount at the end of term risk having to sell their home or face foreclosure." The final value itself can be contested: the company may dispute a sale price, for example after a distressed sale, and if the home is not sold, the CFPB found that an appraiser hired by the company typically sets the value used in the formula.

How it compares with borrowing against the home. A home equity loan, a home equity line of credit and a cash-out refinance all charge a stated interest rate and require monthly payments, which demands income but makes the cost knowable. A reverse mortgage, including the federally insured home equity conversion mortgage, also needs no monthly payment but is a regulated loan with its own age and counseling requirements. A home equity investment needs neither income nor monthly payments, and in exchange its cost depends on the future price of the house and the contract's multiplier, discount and cap. A shared appreciation mortgage is a related idea in loan form, a mortgage whose lender takes part of the appreciation. The CFPB report describes the products and their risks; it does not settle how federal lending laws apply to them. States have looked at them too: Washington's Department of Financial Institutions, which calls them home equity sharing agreements, reported in 2024 that the products show "many similarities" to "traditional loan products."

The company appraises the home, offers a payment equal to a percentage of its value, records a lien, and sets the repayment formula. Nothing is paid until the term ends or a trigger occurs; then the formula is applied to the home's value at that time, subject to any cap.

For example, take a hypothetical contract built the way the CFPB's example describes. Ramon's home appraises at $500,000. He receives 10%, or $50,000, less a 3% processing fee of $1,500, so $48,500 reaches his account. In exchange he owes the lesser of 20% of the home's value at settlement or $50,000 grown at 18% a year compounded monthly. He sells after 10 years for $650,000. Twenty percent of $650,000 is $130,000; the capped amount would be about $298,466, so he owes the lower figure, $130,000. That is $81,500 more than the cash he received, equivalent to about 10.4% a year on $48,500. If the house had not risen at all and sold for $500,000, he would still owe 20% of $500,000, or $100,000, equivalent to about 7.5% a year, which is the multiplier working exactly as the CFPB described.

Pros

• No monthly payment during the term, which can matter to a homeowner whose income would not support a loan payment.
• Providers advertise no income requirements and "no need for perfect credit," according to the CFPB, where a home equity loan or line of credit is underwritten on income and credit.
• The homeowner keeps living in and owning the home, with the company's interest limited to its share at settlement.

Cons

• The repayment can be much larger than the cash received, and a multiplier lets the company profit even if the home does not appreciate.
• The final cost is unknown in advance and can be very large if the home appreciates strongly, subject only to any cap in the contract.
• A lien on the home can make refinancing or new borrowing harder for the whole term.
• The full amount comes due at once, which can force a sale or new borrowing at the end of the term.
• Disclosures are not standardized, so comparing offers across companies is difficult.