A Home Equity Investment (HEI) Program enables homeowners to tap into their home’s value without taking on new debt or monthly payments. Under this arrangement, an HEI provider offers a lump sum upfront in exchange for a percentage of the future appreciation of your home’s value. You retain full ownership of your property — the provider simply shares in its future gains.
Unlike traditional home equity loans or lines of credit (HELOCs) which require repayments and add debt, HEIs avoid monthly payments and interest charges. Repayment to the provider occurs at a “trigger event,” commonly when you sell, refinance, pass away, or reach the end of the contract term, usually ranging from 10 to 30 years.
For example, if your home is valued at $500,000 and you receive $50,000 (10% of the home’s current value) from an HEI provider in exchange for 25% of future appreciation, and later your home sells for $600,000, the provider would get their original $50,000 plus 25% of the $100,000 appreciation ($25,000), totaling $75,000. If the home’s value falls, some contracts guarantee the provider at least their original investment back, while others may let you share in the loss.
HEI programs are ideal for homeowners who want to avoid increasing debt or monthly expenses, have lower credit scores, irregular incomes, or immediate cash needs without loan qualifications. They can be particularly useful for retirees or those who are “house rich but cash poor.”
When compared to traditional methods, HEIs differ significantly:
- Debt: HEIs are not loans and do not increase debt.
- Payments: No monthly payments are required.
- Interest: No interest charges; returns come from sharing appreciation.
In contrast, HELOCs and cash-out refinances involve monthly payments, interest, and impact credit scores.
Before choosing an HEI, carefully review all terms, including the provider’s share of appreciation, any caps or minimum returns, fees, and trigger events. Consult a financial advisor or real estate attorney to understand how an HEI pact fits your financial situation.
To understand related topics like home equity lines of credit (HELOCs) or equity participation loans, see our glossary entries on Home Equity Line of Credit (HELOC) and Equity Participation Loan.
For official guidance on home financing, visit the IRS website IRS.gov.
Sources:
- Investopedia: Home Equity Investment (HEI) Definition and Examples
- NerdWallet: What Is a Home Equity Investment (HEI)?
