Homeowners are sitting on record levels of home equity, but many are hesitant to tap into it with a cash-out refinance or a second mortgage. High mortgage rates have made borrowing more expensive, and adding another monthly payment can feel risky when budgets are already stretched. That tension has helped put home equity agreements on more homeowners’ radars. These agreements promise cash without monthly payments, but they come with trade-offs.
At its core, a home equity agreement (HEA) allows a homeowner to receive a lump-sum cash payment today in exchange for giving an investor a share of the home’s future value. Instead of paying interest and making monthly payments, the homeowner settles the agreement later — typically when they sell the home, refinance, or reach the end of the agreement’s term (usually 10 to 30 years, but more on this below).
“For decades, homeowners who needed to tap into their equity had only two real choices: Sell the house or take on more debt,” said Jeff Glass, CEO and co-founder of the home equity agreement company Hometap. “A home equity investment gives them a third option.”
Home equity agreements are sometimes referred to as shared appreciation agreements or home equity investments. While the terminology varies, the structure is similar across most home equity agreement companies: Homeowners trade a portion of future equity for access to cash today.
Something else worth noting: You won’t find HEAs with your typical mortgage lender. HEA companies specialize in these types of investments and work directly with you, the borrower, without a middleman. These firms include, but aren’t limited to, companies like Hometap, Point, Unison, and Splitero. As with any mortgage product, you’re encouraged to get quotes from several to compare terms.
A home equity agreement typically begins with a home appraisal to determine the available equity. Based on that valuation, the investor offers a lump-sum payment. In exchange, the investor places a lien on the property and becomes entitled to a percentage of the home’s future value.
Unlike a loan, there’s no set interest rate and no required monthly payment. The amount owed at settlement depends on how much the home appreciates or depreciates and how long the homeowner keeps the agreement.
“If the home’s value goes down, what the homeowner owes goes down with it,” Glass said.
Most home equity agreements sit junior to an existing mortgage, meaning homeowners don’t have to refinance their mortgage or give up a low-rate mortgage they may already have.
With an HEA, you can expect terms ranging from 10 to 30 years and up-front fees similar to other home equity lending options (more on those in a minute). The ultimate sum you’ll pay to your HEA investor varies by company, but it’s based on a proprietary rate set by the company and clearly stated in your HEA agreement.
For example, say you and your HEA investor agree on a 10% rate and a 10-year term on a home worth $500,000. You’ll receive a 10% payout up front ($50,000), and the investor gets 10% of the home’s future value at the end of the term. Here’s how the numbers will play out if you sell your home in 10 years for $700,000:
$700,000 – original $500,000 = $200,000 in equity
$200,000 equity – $50,000 you initially borrowed = $150,000 in equity
$150,000 – $70,000 (your investor’s share of 10% of the home’s value) = $80,000
In this case, you would pocket $80,000 — before covering the costs of selling the home — and pay the HEA company the $50,000 you originally borrowed, plus their share of $70,000 for a total of $120,000.
Home equity agreements are often compared with more familiar options like home equity lines of credit (HELOCs) and home equity loans, but the differences matter.
A HELOC is a revolving line of credit with variable interest rates and required monthly payments. A home equity loan gives borrowers a lump sum of cash with a fixed rate and predictable monthly payments. Both increase a homeowner’s debt load and typically appear on credit reports.
A home equity agreement doesn’t require monthly payments and generally isn’t treated as traditional debt. That flexibility can appeal to homeowners who want to avoid stretching their monthly budget or disturbing their credit score, or who don’t want to lose a low-rate primary mortgage.
But all three products — HEAs, HELOCs, and HELs — share common closing costs. Typical costs, which generally range from 3% to 5% of your payout amount, include an appraisal, loan origination fees, escrow fees, title insurance and search fees, and recording fees.
The biggest difference comes down to predictability. Home equity loans are the least flexible but offer the most certainty, while home equity agreements trade certainty for flexibility. Variable rates put HELOCs somewhere in the middle.
Supporters of home equity agreements claim they can be useful in certain situations, particularly for homeowners who are equity-rich but cash-constrained.
According to Glass, Hometap’s typical customer is a longtime homeowner with significant equity who needs access to capital without taking on another monthly obligation. Use cases can include paying off higher-interest debt, covering medical or family expenses, renovating a home, or funding opportunities like education or a small business.
One of the biggest challenges with a home equity agreement is that the cost isn’t obvious on day one. Without an interest rate or monthly payment, it can be difficult for homeowners to compare it directly with more familiar options like a HELOC or home equity loan.
That uncertainty is often part of the appeal. But it’s also why financial advisors encourage homeowners to look beyond the absence of monthly payments and focus on how the math can play out over time.
Consider a homeowner with a house worth $400,000 who wants to access $60,000 in equity.
With a HELOC, assume the homeowner borrows $60,000 at an 8% interest rate with a two-year draw period and an eight-year repayment term. Payment during the draw period would be $400 per month, and during the repayment term, about $828 per month. The total repaid would be roughly $91,000, with about $31,000 of that being interest.
Now consider a home equity agreement. Instead of monthly payments, the homeowner receives $60,000 up front and agrees to share a portion of the home’s future appreciation (say, 30%) with an investor. If the home appreciates from $400,000 to $550,000 over the same 10-year period and the agreement requires the investor to receive 30% of that gain, the appreciation share would be $45,000.
That would put the settlement at roughly $105,000 ($60,000 borrowed + $45,000 share of equity), before any fees. And that $105,000? You’ll generally pay it back in a lump sum at the end of the agreement term or when you sell or refinance your home. However, you can settle up early with some HEA companies and save on costs. Be sure to research repayment terms to avoid any uncertainty.
The uncertainty of HEAs is what makes many financial advisors cautious.
“What I focus on is total cost over time, not whether there’s a monthly payment,” said Dave Petso, managing director and executive advisor at Modern Wealth Management. “Just because there’s no monthly payment doesn’t mean it’s cheaper. It usually means the cost is deferred and magnified.”
Home equity agreement companies say they work to make those trade-offs clear.
Glass said Hometap walks homeowners through multiple scenarios before they sign, showing how different home price changes and timelines could affect what they owe. The company also provides ongoing visibility into estimated settlement amounts through an online dashboard.
Home equity agreements aren’t regulated in the same way as traditional mortgages. Oversight varies by state, and protections often depend on the contract itself.
Glass said Hometap supports clearer regulation and industry standards and is working with regulators to develop appropriate frameworks.
For homeowners who are uncomfortable with monthly payments but hesitant to give up future equity, advisors often suggest exploring other options first.
Those alternatives may include traditional home equity loans, smaller HELOCs, or waiting until borrowing conditions improve.
Another option? The cash-out refinance. While this option could force you to trade a low mortgage rate for a higher one, it could give you access to the cash you need with a fixed monthly payment. And depending on your financial situation, you may even be able to avoid stretching your loan term out, which keeps you on track for a similar payoff date to your current mortgage.
A home equity agreement can make sense for some homeowners, but it isn’t a one-size-fits-all solution. It may appeal to people who need cash but want to avoid monthly payments or taking on more debt. The trade-off is giving up a share of future home value, which can be costly if prices rise. Comparing it carefully with a HELOC or home equity loan is key.
Yes. Home equity agreements are typically paid back when you sell your home, refinance, or reach the end of the agreement term. Some agreements also allow homeowners to buy out the investor earlier, though the cost depends on the home’s value at that time. Because repayment usually happens as a lump sum, it’s important to understand how timing and appreciation affect what you’ll owe.
Home equity agreements generally don’t affect your credit score the same way loans do because they aren’t structured as traditional debt and don’t require monthly payments. That said, the agreement places a lien on your home, which can affect future borrowing or refinancing. Failing to stick to the contract terms can also create financial complications, even if your credit score isn’t directly affected.
Laura Grace Tarpley edited this article.
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