The lesser-known home equity option some homeowners have yet to discover

For years, homeowners looking to tap their home’s value for cash had two familiar choices: a home equity loan or a home equity line of credit, or HELOC. Both require monthly payments based on the amount borrowed. A newer option, known as a home equity investment, or home equity agreement or home equity sharing, works differently. Instead of taking on monthly payments, homeowners receive a lump sum from the provider and agree to share a portion of the home’s future value.

No single option is best for everyone, and each comes with trade-offs. Hometap compares a home equity investment with a HELOC by looking at process, cost and which type of homeowner each may suit best.

How a HELOC Works

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

HELOC rates are typically variable, so they can rise or fall with broader market conditions and cause monthly payments to change. According to Bankrate, the national average HELOC rate was about 7.36% as of late 2026, though the exact rate depends on the borrower’s credit profile, loan-to-value ratio and lender.

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

How a Home Equity Investment Works

With a home equity investment, a homeowner receives a portion of their equity as a lump sum in exchange for giving the investor a share of the home’s future value or appreciation. There are no monthly payments. The investment is repaid through a buyout using savings, a refinance, a loan or the sale of the home. Settlement can happen at any point during the term, which is usually 10 to 30 years.

How They Compare

Just as HELOC terms can differ from lender to lender, home equity investment terms can vary by investor. The points below generally apply to both products, though details may differ.

The Pros and Cons of a HELOC

Pros

• Lets homeowners borrow only what they need, when they need it
• Interest is charged only on the amount drawn, not the full credit limit
• Can act as a backup source of funds for unexpected expenses
• Often provides access to a larger portion of home equity, commonly 80% to 85%

Cons

• Variable rates can make monthly payments rise or fall
• Payments begin as soon as money is borrowed
• Approval often depends on verified income and debt-to-income limits
• Some lenders require a minimum draw, which can force a homeowner to borrow more than planned
• The line of credit can be frozen if credit quality declines

The Pros and Cons of a Home Equity Investment

Pros

• No monthly payments during the term
• Does not affect the mortgage rate
• No income requirement, which may help homeowners with nontraditional income
• Provides a lump sum that can work well for a fixed-cost project, such as a renovation with a set budget
• No penalty for paying it off early

Cons

• The repayment amount depends on when the homeowner settles and what the home is worth at that time
• Access is capped at 27% of the home’s value, which is often less than what a HELOC may allow
• Not available in every state or for every property type

Costs and Eligibility

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

• Fees: Closing costs and fees are taken from the initial investment and vary by state.
• Credit: Minimum FICO scores generally range from 500 to 620, depending on the provider.
• Settlement: Homeowners can repay through cash buyout, refinance, a home equity loan or a home sale at any time during the term.
• Property types: Primary residences may qualify, and vacation homes or rental properties may also be eligible if additional requirements are met.

Questions to Consider Before Choosing

The right choice depends on a homeowner’s goals, timeline and comfort level with monthly payments versus giving up a share of future home value. A financial advisor can help evaluate those trade-offs.

Homeowners may want to ask themselves:

• Do I want ongoing access to money or a single lump sum? A HELOC provides ongoing borrowing, while a home equity investment delivers one upfront payment.
• Am I comfortable with a new monthly bill? A HELOC adds one. A home equity investment does not, but it can mean a larger settlement later.
• How much of my home’s future appreciation do I want to keep? With a HELOC, the homeowner keeps all of it as long as the borrowed balance is repaid when the home is sold or refinanced. A home equity investment requires sharing part of that value.
• How will I repay it? A home equity investment is usually settled with proceeds from a sale, refinance, loan or savings-based buyout within the term.