HEI. No monthly payment. Big trade-off.
A Home Equity Investment is fundamentally different from HELOC, home equity loan, and cash-out refi. You sell a percentage of your home's future appreciation in exchange for cash today. There's no interest rate, no monthly payment, no debt on your balance sheet. Settlement happens when you sell, refinance, or hit the term cap (typically 10-30 years). It's brilliant when cash flow matters more than long-term cost. It's expensive when your home appreciates strongly. Here's the honest math — including when HEI is the right answer and when HELOC wins.
What brings you here today?
The mechanics, plainly explained.
HEI is conceptually different from a loan. Nothing is borrowed; nothing is paid back monthly. Instead, an investor purchases a percentage of your home's future appreciation. The math is straightforward once you see it.
Cash now
The HEI provider gives you a lump sum at closing — typically up to 17% of your home's current value. Cash hits your account, you can use it for anything (renovation, debt consolidation, cash flow during retirement, business investment).
No monthly payment ever. Not interest, not principal. The HEI sits on your home as a lien, but generates no recurring cost.
Time passes
Years pass. You live in the home, make your regular mortgage payments (the HEI doesn't replace your first mortgage — it sits on top). Your home appreciates (or depreciates).
The HEI provider is now economically tied to your home's value. If your home appreciates a lot, their payout grows. If it stays flat or declines, their payout shrinks.
Settlement event
You eventually sell, refinance, buy them out, or hit the term cap (typically 10-30 years). This is the settlement event.
At settlement, the HEI provider receives: their original cash back, plus an agreed-upon percentage of appreciation. Typical share: 10-25% of appreciation. If your home depreciated, they take the loss with you — most HEI products have downside protection.
What does HEI actually cost you?
The "no monthly payment" sounds free, but HEI has a real cost — measured by what you give up at settlement. The cost depends almost entirely on your home's appreciation rate over your holding period. Here's the actual math.
Five inputs. One real cost.
What you'll pay at settlement.
Compare to alternatives: the same $100,000 via HELOC at 9% interest-only over 10 years would cost about $90,000 in interest + the $100,000 principal at end. HEI total cost in this scenario: $75,467 in appreciation share. At 5.0%/year appreciation, HEI saves about $14,533 vs. HELOC.
Calculations assume simple compounding appreciation at the rate shown, no fees, and a clean settlement at the term shown. Real HEI products have origination fees ($500-$2,000), require an upfront appraisal ($500-$800), and may have minimum-return clauses or shared-loss provisions.
Same $100K cash. Different markets.
A homeowner needs $100,000 today. They're considering HEI (20% appreciation share) vs HELOC at 9% interest-only. The "winner" depends entirely on what happens to home value over the next 10 years. Three scenarios:
Flat market. HEI wins.
HEI saves $64K in this scenario. Home grows from $600K to $731K (after 2%/yr × 10 years). HEI provider's 20% share of the $131K appreciation = $26,200. HEI is the brilliant choice when you don't need flexibility and appreciation is muted.
Normal market. Close call.
HEI saves $14K at 5%/yr appreciation — but the gap narrows. Home grows from $600K to $977K. HEI provider's 20% share of $377K appreciation = $75,400. Below this appreciation rate, HEI clearly wins; above it, HELOC takes over.
Hot market. HELOC wins.
HELOC saves $85K in this scenario. Home grows from $600K to $1.295M. HEI provider's 20% share of $695K appreciation = $139K, plus original $100K back. In hot markets, HEI gets very expensive — you're sharing huge upside for the no-payment convenience.
HEI is brilliant in some cases. Expensive in others.
No equity product is universally best. HEI's structural strengths and weaknesses point at very specific borrower profiles. Match yourself to the right column.
Cash flow matters more than long-term cost.
HEI's defining feature is no monthly payment, ever. That matters when monthly cash flow is constrained, when you're recently retired with limited income, or when you want to use the cash for income-generating investments without the drag of debt service.
- Cash-flow-constrained borrowers who can't take on a $700-$1,000/month new debt payment.
- Self-employed or 1099 income where adding HELOC debt service would impact DTI for future borrowing.
- Recent retirees who want lump-sum cash without affecting Social Security or fixed-income budgets.
- Markets with modest appreciation expectations (under 4-5%/year long-term).
- Borrowers planning to sell within 10 years anyway — settlement happens at sale, no early-buyout cost.
- FICO or DTI doesn't qualify for HELOC — HEI underwriting is property-based, not income-based.
You hold long-term in a high-appreciation market.
HEI's economics work against you when your home appreciates strongly. The longer you hold and the faster the home grows, the more expensive HEI becomes.
- High-appreciation markets where 6-10%/year is common — implied IRRs to the HEI provider often exceed 12-18%.
- Long holding periods (15+ years). Time and appreciation compound the provider's payout.
- Borrowers who could easily qualify for HELOC at 8-9%. The math usually favors HELOC at average and above-average appreciation.
- Borrowers planning to renovate/improve the home substantially. Most HEI products take a share of total appreciation — including value created by your renovation work.
- Inheritance/estate considerations — heirs settle the HEI at fair market value, which can claim significant appreciation share.
- If you'd qualify for cash-out refi at favorable rates AND your first-lien rate is at/above current rates.
The decision rule: HEI is best evaluated against your alternative. Calculate the cost of HEI at your expected appreciation rate. Calculate the cost of HELOC or home equity loan over the same horizon. Whichever is lower is your answer. Most borrowers benefit from running both calculations before signing.
The HEI provider landscape.
As of 2026, several specialty firms originate HEI products with varying terms and target markets. LHFS partners with select HEI providers to match clients with the product that fits their situation. Here's the high-level landscape.
LHFS does not endorse a single HEI provider. The right answer depends on your state, your home value, your appreciation expectations, and which provider's structure (term cap, share %, fees) best fits your situation.
Six honest answers about HEI.
The questions HEI marketing rarely answers clearly.
Often yes — most HEI products include downside protection, but the specifics vary by provider.
Most major providers (Point, Hometap, Unison) structure HEI as a true equity stake, not a debt instrument. If your home depreciates between origination and settlement, the provider absorbs a proportional share of the loss. You typically don't owe more than your home is worth at settlement.
Some products have "starting value adjustments" — the provider discounts your initial home value by 10-20% before calculating their share. This protects them in flat or slightly declining markets, but means even modest depreciation can lead to you owing more than the cash you received.
Read the contract carefully. Specific clauses to look for:
• Downside protection — does it exist, and at what threshold?
• Starting value adjustment — is one applied, and at what percentage?
• Minimum return — does the provider have a floor regardless of home value?
• Maximum payout — is there a cap on what they can claim?
Most HEI products allow early buyout — but it triggers a settlement based on the home's current appraised value, not the original value.
The math: if your home has appreciated since origination, buying out early means paying the appreciation share now. If your home has depreciated, you might be able to buy out for less than you received. Either way, the early buyout is settled at current fair market value.
To execute an early buyout, you typically need:
1. A current appraisal at your cost ($500-$800).
2. Cash or financing to pay the settlement amount.
3. 30-90 day processing window with the HEI provider.
Most HEI products have no prepayment penalty for early buyout, but verify in your contract. Some have a minimum-return clause — you can't buy out for less than the original cash + a small minimum return to the provider.
Yes — HEI complicates first-mortgage refinancing in similar ways to a HELOC second lien.
When you refinance the first mortgage, the new lender requires the second-position lien (your HEI) to either:
1. Subordinate. The HEI provider issues a written agreement to remain in second position behind your new first mortgage. Most HEI providers will subordinate, but they typically charge a fee ($300-$500) and require 2-4 weeks of processing time.
2. Be paid off at refi closing. Settle the HEI as part of the refinance — same math as any early buyout.
Plan ahead — start the subordination request 30-60 days before your refi close date. HEI providers can be slower than HELOC lenders to process subordinations.
Your heirs settle the HEI just as you would have — at the home's then-current fair market value.
Practical paths for heirs:
1. Heirs sell the home. HEI is settled from sale proceeds, like any other lien. Heirs receive whatever's left.
2. Heirs keep the home and pay off the HEI. Settlement based on current appraised value. Heirs would need cash or new financing to cover the settlement.
3. Heirs refinance the home. A new mortgage in heirs' names, large enough to pay off the existing first lien plus the HEI settlement.
The HEI provider will work with heirs through the settlement process. Most provide 6-12 months for heirs to arrange settlement.
Estate planning consideration: if your goal is to pass the home to heirs free and clear, HEI is generally a poor fit.
The tax treatment of HEI is more complex than a traditional loan, and the IRS hasn't issued definitive guidance for all scenarios. Consult a tax advisor before signing.
1. Receiving the cash: not currently treated as taxable income. The IRS generally views HEI as a property transaction, not a loan or income.
2. At settlement: the appreciation share you pay to the HEI provider may affect your home's cost basis — typically increasing it by the share amount. This reduces your capital gain on eventual sale.
3. Primary-residence exclusion: the $250K single / $500K married capital gains exclusion on primary residence still applies.
4. No interest deduction: unlike HELOC or home equity loan interest, HEI doesn't generate interest payments — so there's no interest to deduct.
This varies materially by provider — and it's one of the most important contract terms to negotiate.
Three common approaches:
1. All appreciation counts. The HEI provider takes their share of the home's total appreciation, including value created by your improvements. This is the most common (and least homeowner-friendly) structure.
2. Improvements credit. The provider's share is calculated against appreciation minus documented capital improvements. Look for this clause — it can save tens of thousands in settlement amounts.
3. Forward-looking improvement protection. Some products distinguish between "market appreciation" and "improvement-driven appreciation" via formula.
Borrowers who plan major improvements often find that home equity loan or HELOC is structurally better — you keep all of the value you create.
Considering HEI? Let's compare it to alternatives.
HEI is the right answer for some homeowners and the wrong answer for others. We'll quote HEI side-by-side with HELOC, home equity loan, and cash-out refi for your specific situation — using your home value, appreciation expectations, and time horizon. Sometimes HEI is the brilliant choice. Sometimes it's not. We'll show you the math either way.