HELOC vs home equity investment: what $40,000 costs over 10 years

8 min read · LenderMatch Learn

A HELOC is a loan you repay monthly, with interest on what you draw. A home equity investment (HEI) pays you cash now with no monthly payment, and in return you repay one lump sum later based on a share of your home’s value. When the CFPB compared the two, the home equity investment cost more whenever the home gained value, and came out cheaper only if the home lost at least about 5% of its value over 10 years.

Home equity investments are also sold as home equity agreements (HEAs) and shared equity or shared appreciation agreements; the CFPB calls them home equity contracts. Below is how they work, what $40,000 from each could cost after 3 and 10 years, and what state regulators require. If a HELOC fits your situation, LenderMatch lets you describe your home once and compare what lenders offer.

What is a home equity investment?

In its January 15, 2025 report on home equity contracts, the CFPB describes the basic deal: a company gives you an upfront payment, and you later repay a single lump sum based, in part, on your home’s value. Terms usually run 10 to 30 years. The company records a lien on your home, and you keep living there and keep paying property taxes, insurance, maintenance and your other home loans.

Settlement comes due at the end of the term or earlier if you sell, default on your mortgage, stop paying taxes or insurance, or die.

The market is small next to HELOCs: the CFPB estimates $2 billion to $3 billion in total contracts, against 1.2 million HELOCs originated in the four quarters ending mid-2024. The median customer was in their 50s, and most also had a first mortgage.

How a home equity investment works: share, term and buyout

What you owe at settlement is set by a few contract terms. The CFPB describes each one:

• Multiplier. A company may pay you 10% of your home’s value in exchange for a 20% stake, a 2x multiple. Some apply the stake to the home’s total value, others to its appreciation only.
• Discounted starting value. Some contracts set the home’s starting value about 25% below its appraised value, which increases the company’s share of any gain.
• Cap. Several companies cap what they can collect at around 18% to 20% a year, compounded monthly, so the settlement can grow about 19.5% to 22% a year while the cap is the limit.
• Fees. Your payment is often reduced by closing costs, and processing fees are often 3% to 5% of the initial payment.

Whether you settle at the end of the term or sell in year 3, the company’s share is figured from the home’s value at that time, limited by the cap.

What does a home equity investment cost? The CFPB’s example

The CFPB modeled a $50,000 payment on a $500,000 home, with a 20% annual cap. If the home gained 6% a year, the homeowner owed $86,400 in year 3, the equivalent of about 20% interest, and $179,085 in year 10, about 14% a year. Across its scenarios, the year-10 settlement ranged from $94,074 to $215,892, and the cost equaled about 20% interest for the first two to six years.

A $50,000 HELOC at 9%, interest only, would cost $375 a month, or $45,000 in interest over 10 years, with the $50,000 still owed.

HELOC vs home equity investment: a $40,000 example

Say your home is worth $400,000 and you owe $220,000 on your mortgage. You need $40,000.

• Home equity investment: a $40,000 payment (10% of value) for 20% of the home’s value at settlement, the 2x structure the CFPB describes. A 4% processing fee ($1,600) leaves you $38,400. The cap is 20% a year, compounded annually, as in the CFPB’s example.
• HELOC: $40,000 at an assumed 8.00% (the 7.00% prime rate as of October 20, 2026, plus a 1.00% margin, for illustration), interest only for 10 years: about $267 a month, $32,000 of interest, with $40,000 still owed. That works out to 8.0% a year, before any HELOC fees, if the rate never changes.

Calculated by LenderMatch. “Yearly cost” is the compound annual rate that turns the $38,400 you receive into the settlement. The contract terms and the 8.00% HELOC rate are assumptions for illustration, not offers.

Here the home equity investment costs less per year than the 8.00% HELOC only if the home is worth about $414,500 or less after 10 years, roughly flat.

Settling early is where the cap matters. If you sell in year 3 with a flat or rising value, 20% of the home is $80,000 or more, so the cap sets the bill: $69,120, about 21.6% a year on the $38,400 you received. The HELOC would have cost $9,600 in interest, with the $40,000 repaid from the sale.

The HELOC’s rate is variable, though, and you need room for the monthly payment. Test higher rates in the HELOC payment calculator.

HELOC vs HEI side by side

See what is a HELOC, or check your borrowing room in the home equity calculator.

Is a home equity investment a loan? What regulators say

Whether a home equity investment counts as a loan depends on where you live. Some states now regulate these contracts as mortgage loans:

• Maryland’s 2023 law (Chapter 568) makes shared appreciation agreements mortgage loans under its Mortgage Lender Law. Rules effective November 25, 2024 require set disclosures and a fixed method for valuing the home and the final payment.
• Illinois has treated shared appreciation agreements as licensed mortgage loans since January 1, 2025. Rules effective June 1, 2026 add a model disclosure, counseling from a HUD-certified counselor before you sign, and a repayment cap of 36% APR.
• Washington’s Department of Financial Institutions has an open rulemaking to clarify the requirements for home equity sharing agreements.

At the federal level, the CFPB’s 2025 report is a research report and does not set rules. A September 2026 law firm review noted a bill in the U.S. Senate (S. 4803) that would bring these products under the Truth in Lending Act, and that it had not passed. Before you sign, check the company’s license with your state’s financial regulator or on NMLS Consumer Access.

Home equity investment pros and cons

Possible advantages:

• No monthly payment while the contract is open.
• Companies often advertise acceptance of low credit scores or no income (CFPB).
• If your home loses value, what you owe can shrink with it.

Drawbacks the CFPB highlights:

• The cost equaled about 20% interest for the first two to six years in its scenarios.
• The lump sum is hard to predict, and disclosures are not standardized.
• The lien can make it harder to refinance your first mortgage.
• You must keep up taxes, insurance and upkeep; one company in its review bars absences of more than 60 consecutive days.
• If you cannot pay at the end, you may have to sell or face foreclosure.

Questions to ask before you sign a home equity agreement

1. What share of my home’s value or appreciation do you receive, and what is the multiple?
2. What starting value will you use, and how far is it below the appraisal?
3. Is there a cap, what is its annual rate, and how is it compounded?
4. What fees come out, and how much cash will I receive?
5. What would I owe in years 3, 5 and 10 if my home rises 0%, 3% or 6% a year?
6. Which events make the full amount due, and will your lien block a refinance?

When a HELOC fits better, and when an HEI might

A HELOC tends to fit when you can qualify, can carry the monthly payment and expect your home to hold or gain value. See HELOC requirements, HELOC with bad credit and, for a fixed payment, the home equity loan.

A home equity investment may fit when you cannot qualify for a loan or carry a payment, and you accept that the final amount depends on the housing market. Our guide to getting equity out without refinancing compares every route, including reverse mortgages.

Frequently asked questions

What is the difference between a HELOC and a home equity investment?

A HELOC is a loan: you borrow against your home, pay interest every month, usually at a variable rate, and repay what you borrowed. A home equity investment pays you cash now with no monthly payment. In return, you repay one lump sum later, based on a share of your home’s value, at the end of the term or when you sell.

Is a home equity investment better than a HELOC?

It depends on what your home is worth when you settle. In the CFPB’s comparison with a 9% HELOC, the contract cost more if the home gained value and less only if it lost at least about 5% over 10 years.

Do you have to pay back a home equity investment?

Yes. There are no monthly payments, but you owe a single lump sum at the end of the term (often 10 to 30 years) or earlier if you sell, default on your first mortgage, stop paying property taxes or insurance, or the owner dies. The amount depends on your home’s value at that time.

Can I get a home equity investment with bad credit?

The CFPB found that companies often advertise acceptance of low credit scores or no income. That access comes at a high long-run cost. Some HELOC lenders still lend to fair-credit borrowers at lower limits, so compare both before you sign.

What happens if I cannot pay a home equity investment at the end of the term?

The CFPB warns that homeowners who cannot pay the settlement may have to sell the home or face foreclosure. Some people cover it with a refinance or savings, but the company’s lien can make refinancing harder.

Does LenderMatch check my credit?

No. LenderMatch never pulls your credit. A lender you choose may check it, with your permission, when you apply.

Compare HELOC offers before you sign anything →