The home equity option many homeowners still don't know about

Homeowners looking to tap their home equity for cash have traditionally turned to either a home equity loan or a home equity line of credit (HELOC). But both usually come with monthly payments tied to the amount borrowed. A newer alternative, called a home equity investment — also known as a home equity agreement or home equity sharing — works differently. Instead of monthly payments, the homeowner gets a lump sum and agrees to give the provider a share of the home’s future value.

There is no one-size-fits-all choice when it comes to home equity, and each option comes with trade-offs. Hometap breaks down how a home equity investment compares with a HELOC in terms of process, cost and which homeowners it may suit best.

A HELOC is a revolving credit line backed by your home, much like a credit card. During the draw period, which typically lasts about 10 years, homeowners can borrow from their available equity as needed and usually make interest-only payments on what they use.

HELOC rates are generally variable, so monthly payments can change as market rates move. The national average HELOC rate was about 7.36% as of late 2026, according to Bankrate, though actual rates depend on credit history, loan-to-value ratio and the lender.

Once the draw period ends, the repayment period begins. That stage usually lasts 15 to 20 years, and borrowers make principal-and-interest payments until the balance is paid off. Because a HELOC is a line of credit, every dollar borrowed eventually accrues interest.

How a Home Equity Investment Works

With a home equity investment, the homeowner receives a lump sum in exchange for giving the investor a share of the home’s future value or appreciation. There are no monthly payments. Repayment happens later through a refinance, a loan, a cash buyout or the sale of the home. The investment can typically be settled at any point during a term that often runs 10 to 30 years.

How They Compare

Just as HELOC terms vary by lender, the details of a home equity investment can differ by investor. The comparison below generally applies to both products, though exact terms may vary.

The Pros and Cons of a HELOC

Pros

• Lets homeowners borrow only what they need, when they need it
• Charges interest only on the amount drawn, not the full credit limit
• Can act as an ongoing backup for unexpected expenses
• Often allows access to a larger share of home equity, commonly 80% to 85%

Cons

• Variable rates can lead to changing monthly payments
• Payments begin as soon as money is borrowed
• Approval usually depends on verified income and debt-to-income requirements
• Some lenders require a minimum draw, which can push homeowners to borrow more than planned
• The line of credit can be frozen if credit scores fall

The Pros and Cons of a Home Equity Investment

Pros

• No monthly payments during the term
• No effect on the mortgage rate
• No income requirement, which may help borrowers with nontraditional income
• Provides a lump sum that can work well for fixed-cost projects, such as a renovation with a set budget
• No penalty for paying it off early

Cons

• The settlement amount depends on when the homeowner exits and what the home is worth then
• Access is capped at 27% of the home’s value, which is less than many HELOCs allow
• Not available in every state or for every type of property

Costs and Eligibility

Like any home equity product, a home equity investment comes with costs and qualification rules. In most cases, that includes:

• Fees: Closing costs and other fees are taken from the initial investment amount and can vary by state.
• Credit: Minimum FICO requirements typically range from 500 to 620, depending on the provider.
• Settlement: Homeowners can settle through a cash buyout, refinance, home equity loan or home sale at any time during the term.
• Property types: Primary homes may qualify, and vacation homes or rentals may also be eligible if they meet extra criteria.

Questions to Consider Before Choosing

The right choice depends on a homeowner’s goals, timeline and comfort level with monthly payments versus sharing part of future home value. A financial advisor can help sort through those factors.

Homeowners may want to ask themselves:

• Do I want ongoing access to funds or a single lump sum? A HELOC provides ongoing access, while a home equity investment provides a one-time payout.
• How do I feel about a new monthly obligation? A HELOC adds one. A home equity investment does not, but it can mean a larger settlement payment later.
• How much of my home’s future appreciation or value do I want to keep? A HELOC leaves all of that with the homeowner, as long as the drawn balance is repaid when the home is sold or refinanced. A home equity investment shares part of it.
• How will I settle? A home equity investment is usually repaid through a home sale, refinance, loan or buyout with savings within the term.