Is a Home Equity Agreement a Good Idea?

A home equity agreement (HEA) allows you to access your home’s equity without taking on monthly payments. However, it comes with a significant trade-off: You’re essentially selling a portion of your home’s future appreciation to an investor.

While this arrangement can provide needed cash flow relief and access to funds when traditional loans aren’t available, it also means giving up potentially substantial equity growth over time. Is it right for you? Here’s a look at an HEA might be worth considering, and when you might look to alternatives.

Table of Contents

1. When is a home equity agreement a good idea?
   1. ✅ You don’t qualify for traditional home equity products
   2. ✅ You need funds but can’t afford another monthly payment
   3. ✅ You plan to move within a few years
2. When a home equity agreement may not be a good idea
   1. ❌ You plan to stay in your home long term
   2. ❌ You expect your home’s value to grow substantially
   3. ❌ You have strong credit and income
3. Example: Is an HEA the right choice?
4. How to decide whether a home equity agreement is right for you
5. FAQ

When is a home equity agreement a good idea?

HEAs aren’t right for everyone, but they can be valuable financial tools in specific circumstances. Here are just a few examples when an HEA might make sense for you.

✅ You don’t qualify for traditional home equity products

HEA providers often work with homeowners who can’t access HELs or HELOCs due to credit or income constraints. If you have a credit score below 620, a high debt-to-income ratio, or irregular income, an HEA might be your only option for accessing your home equity.

For example, a homeowner with a 550 credit score may not be eligible for a HELOC. But with home equity agreement providers like Point, which has a minimum score requirement of 500, she may be eligible for an HEA.

✅ You need funds but can’t afford another monthly payment

The absence of monthly payments makes HEAs particularly attractive during financial crises or periods of income instability. This could include medical emergencies, job loss, or caring for aging parents while managing reduced work hours.

In many cases, HEAs have no minimum income requirement.

✅ You plan to move within a few years

If you’re planning to sell your home relatively soon, you may not experience the full impact of appreciation sharing. For homeowners who know they’ll relocate within three to five years, an HEA can provide needed liquidity without the long-term equity loss concerns.

When a home equity agreement may not be a good idea

In many cases, HEAs can be particularly costly or inappropriate for homeowners’ long-term financial health. Here are just a few examples.

❌ You plan to stay in your home long term

The longer you remain in your home, the more appreciation the investor will likely share in. If you plan to stay put for 10 or more years, you could end up paying significantly more than you would with a traditional loan, especially in appreciating markets.

❌ You expect your home’s value to grow substantially

HEAs become extremely expensive in rapidly appreciating markets. If you’re in a hot real estate market or an up-and-coming neighborhood, the investor’s share of appreciation could far exceed what you’d pay in interest on a traditional home equity loan.

For example, in a market appreciating 5.5% annually, a $500,000 home would be worth $854,072 in 10 years. If you agree to a $50,000 HEA with a 25% appreciation share, you’d have to repay the initial $50,000 plus an additional $88,518 (depending on agreement limitations). In contrast, a 10-year home equity loan with a 9% interest rate would result in roughly $26,005 in interest payments.

❌ You have strong credit and income

If you qualify for competitive rates on HELs or HELOCs, these traditional options almost always offer lower total costs than HEAs. The convenience of no monthly payments rarely justifies giving up equity appreciation when you can access cheaper financing.

Example: Is an HEA the right choice?

If you’re considering tapping into your home equity for a large chunk of cash, it makes sense to compare an HEA with two other home equity products — a home equity line of credit (HELOC) and a home equity loan (HEL).

Both provide access to cash based on your equity, but unlike an HEA, you aren’t selling a portion of your future home value to an investor. Instead, you’re borrowing outright and paying back what you owe with interest.

Let’s examine how a $50,000 funding need might play out across different products. Suppose your home is currently worth $400,000, and you expect it to appreciate by an average of 3.5% over the next 10 years, giving you an estimated value of $564,240.

Here’s how your options might compare:

	Home equity agreement	Home equity loan	Home equity line of credit
Credit score requirement	500	620	680
Interest rate/equity share	25% equity share	9% APR	11% APR
Monthly payment	None	$633.38	$688.75
Total cost	$41,060	$26,005	$32,650

In this scenario, the HEA costs more than traditional options, but provides cash flow relief that might be worth the premium for homeowners who can’t handle monthly payments or who plan to move before the agreement expires.

How to decide whether a home equity agreement is right for you

Your decision should center on your specific financial goals and circumstances rather than just whether you qualify. Before proceeding with an HEA, honestly assess the following:

• Do I expect my home value to rise? If you’re in a rapidly appreciating market, HEAs become increasingly expensive. Research local market trends and consider whether your area is likely to outperform national averages.
• How long do I plan to stay? The longer your timeline, the more expensive HEAs typically become. If you’re unsure about your housing plans, traditional financing might be safer.
• Can I qualify for cheaper options? Shop around with multiple lenders for HELs and HELOCs before settling on an HEA. Even if one lender rejects you, others might approve you for traditional products with better long-term costs.
• Are monthly payments feasible? Be realistic about your budget. If you can handle monthly payments, traditional loans almost always cost less over time.

Most importantly, read all terms and conditions carefully. Pay special attention to the investor’s share percentage, agreement length, and any scenarios that might trigger early repayment. You may even consider consulting with a financial advisor to model different market scenarios and their impact on your total costs.

HEAs can be valuable tools for accessing home equity, but they work best as short-term solutions or when traditional financing isn’t available. For most homeowners with good credit and stable income, the long-term costs of giving up equity appreciation outweigh the benefit of avoiding monthly payments.

FAQ

Will I owe more than I borrow with a home equity agreement?

Yes, in most cases you’ll repay more than you initially received. That’s because an HEA isn’t just a loan—it’s an agreement to share a portion of your home’s future appreciation. If your home gains value, you’ll owe your original advance plus your share of that appreciation.

What happens if my home loses value?

If your home declines in value, you may owe less than you borrowed. Since repayment is tied to the home’s value at the end of the term (or when you sell), the investor shares in the downside risk. However, most agreements have minimum repayment requirements, so you’ll still have to pay back at least the original advance.

Can I use the money from an HEA however I want?

Yes, typically you can use the funds however you choose. Many homeowners use HEAs for debt consolidation, home improvements, education costs, or other major expenses. Unlike certain specialized loans, there are usually no restrictions on how you spend the money.

How long do I have to repay a home equity agreement?

Most HEAs last 10 to 30 years, though the term varies by provider. Repayment is usually required when the agreement ends, if you sell your home, or if you refinance your mortgage. At that point, you’ll pay back the advance plus the agreed share of your home’s value change.

Is a home equity agreement taxable income?

Generally, the money you receive from an HEA is not considered taxable income because it’s treated as an investment, not earnings. However, tax treatment can depend on your specific situation, so it’s wise to consult a tax professional before moving forward.