Breaking down what a home equity agreement costs
Key takeaways
- Home equity sharing agreements (HEAs) are costly and financially risky, requiring homeowners to give up a portion of their home’s future value for a lump-sum payment.
- Also known as home equity investments (HEIs), these products are an alternative for homeowners with poor credit or those who may not qualify for traditional home equity products.
- These agreements are complicated, with each company having its own formula and rules to determine how much the homeowner ultimately pays — and very few consumer protections.
- After the home is sold or at the end of the contract period, the homeowner repays the investors, which can add up to hundreds of thousands of dollars.
Home equity sharing agreements (HEAs) offer a lump sum in exchange for a share of your home’s future value. They are usually suited for homeowners who may not qualify for a traditional HELOC or home equity loan but still need access to funds.
Also known as home equity investments (HEIs), these products don’t have monthly payments, income requirements or a need for perfect credit. However, they’re risky, and with homeowners collectively holding a record $35.8 trillion in equity as of the second quarter of 2026, it’s important to know that what may sound like an attractive alternative to access that wealth might be anything but.
Not only are the contracts complex, but homeowners also lack many of the same consumer protections they have with HELOCs and home equity loans. The gap stems from the fact that HEI providers characterize these 10- to 30-year agreements as investments, not loans. While a growing number of states have enacted legislation to treat home equity sharing agreements as loans, companies still aren’t required to follow certain federal regulations.
At the end of the contract, you have to pay a percentage of the home’s value plus your original investment. This means you could owe tens or even hundreds of thousands of dollars if your home goes up in value. And if your home value drops instead, that doesn’t mean you’ll walk away owing nothing. You will need to repay the original investment by coming up with a large sum of cash, which might mean you might need to refinance your mortgage or sell your home.
Because payment may not come due for a decade or more, it’s easy for homeowners to lose sight of it until the bill arrives. “That’s really what we’re worried about, that this could be another subprime crisis,” says Andrew Pizor, senior attorney at the National Consumer Law Center (NCLC), a nonprofit consumer rights organization. “People get these now, and in 10 to 30 years, depending on how long they keep it, all of a sudden they’re going to have to make these big balloon payments. People aren’t going to be thinking about it until they have [a] reason to need to pay.”
How does a home equity sharing agreement work?
Unlike a traditional mortgage or home equity product, home equity agreements give you a lump sum of cash in exchange for a share of your home’s future value. Equity sharing agreements often have terms ranging from 10 to 30 years, and while you won’t have to make monthly payments, you do have to pay the investor back at the end of the contract.
The amount you owe will depend on the type of HEA and how much your home has appreciated when the contract ends or you choose to sell. Even if your home value goes down, you may still owe the investment company money.
“Your house would have to go down, depending on which company, 15% to 25% in value over several years for them to totally lose money and for you not to owe anything,” says Pizor. “That just doesn’t happen in the American housing market.”
Home equity investment companies set their own terms, including how they value your home at the start of the agreement and what share of its future value they’ll collect when it ends, and like any investor, they’re aiming to earn a return. That doesn’t make these agreements a bad deal on their own, but it does mean you could end up paying back significantly more than you received, especially if your home’s value rises quickly.
“There is no free lunch,” says Autumn Knutson, a certified financial planner at Styled Wealth, a financial planning firm. “These products are designed to protect the sellers of these contracts and mitigate their risk exposure.”
Types of home equity sharing agreements
There are two common types of home equity sharing agreements. In both cases, you receive a lump sum from the home equity investment company. The difference is how the investor is compensated.
Share of appreciation model
With the share of appreciation model, you’ll repay the home equity sharing company the initial investment amount, plus a predetermined percentage of your home’s future appreciation, if any.
Let’s say you receive $75,000 in funds for a home worth $450,000. Your 10-year contract gives the company 25% of your home’s future appreciation on top of its original investment, so if your home value rises by $150,000, you’d repay a total of $112,500 when the contract ends.
To get the final amount owed in this example, multiply the appreciated value by the percent the company receives:
$150,000 x 0.25 = $37,500
Then add the original amount invested:
$37,500 + $75,000 = $112,500
Share of home value model
With the share of home value model, instead of repaying the original lump sum you receive, you pay a percentage of the home’s value at the end of the contract or if you sell it. So, if your home declines in value, the percentage you’ll pay to the investor will decrease; you could even pay back less than the original investment amount. But if your home’s value keeps rising, you could end up paying back far more than that original sum.
Using the same example, now let’s say you still receive $75,000, and your home’s value still rises by $150,000 to $600,000. If your agreement gives the company 20% of your home’s total value, you’d owe $120,000 when you sell or when the contract ends.
To get the final amount owed in this example, multiply your home’s value at the end of the contract by the percent the company receives:
$600,000 x 0.20 = $120,000
Depending on your contract, you may not need to repay the original investment like you would with the share of appreciation model.
How much does a home equity sharing agreement cost?
Home equity sharing agreements often come with a list of upfront fees, like transaction fees, origination fees, title fees, escrow fees and recording fees, along with the home appraisal. But these aren’t the main costs you should be most concerned about.
After the appraisal, some investment companies may apply a risk adjustment to your home’s value at the beginning of the agreement that lowers its starting value, which they say helps protect them if home prices fall. This figure is what the investor uses to calculate the amount it will give you and your home’s appreciation at payout time.
For example, let’s say a company offers a 5% risk adjustment of the home’s starting value. If your home appraises for $500,000, the risk adjustment value would be $475,000, a $15,000 difference. A higher risk adjustment of 25% would bring your home’s value down to $375,000, a $125,000 difference.
This risk adjustment means that, under the agreement, you may get less value out of your home’s equity than you thought. Whether your home rises or falls in value, you will have to pay out more to the investment company at the agreement’s end. That’s even with rate caps that limit how fast the repayment amount can grow.
Some companies also tack on multipliers, which means that they still may make a profit, even if the market crashes. For example, you may only be advanced 10% of your home’s current value, but the home equity investment company could require a 15% stake in the home’s future value. Even if you try to repay the entire amount you owe before the contract ends, you may have no choice but to dip into savings, refinance your mortgage or sell your home. The large, lump-sum payment you make at the end of the investment contract can be difficult for most people to manage, and because there is no predicting your home’s future value, you truly won’t know what you owe until it’s time to pay.
“It seems like it’s paradise, free money, but then at the end of the term, you’re going to end up paying such a big percentage, like 10% or 20%,” says Elaine King, certified financial planner and founder of Family and Money Matters, a financial planning firm. “If [in] that time, if the home appreciated as they have in this economy, you’re going to end up paying a ton of money.”
Risks of home equity sharing agreements
Before entering into a home equity sharing agreement, homeowners need to understand what they are giving up in exchange for the funds and what obligations could follow them for years.
You may lack consumer protections
HEI providers classify these products as investments rather than loans, which means they aren’t bound by the same federal laws as traditional loans. Legislation like the Truth in Lending Act (TILA) and the Dodd-Frank Act, designed to protect consumers from predatory practices, don’t apply to home equity investments. In short, you won’t get the protections that typically come with a traditional home loan.
“The Dodd-Frank Act said you cannot put a forced arbitration clause into a mortgage, which means consumers have the right to go to court if there’s a dispute over the terms of the mortgage,” says Pizor. “These [HEI] agreements have arbitration clauses. So if you want to go to court, dispute it, break the contract, and say ‘I was deceived,’ you get forced into arbitration most of the time.”
The differences don’t stop there.
Under TILA’s Regulation Z, mortgage lenders are required to make a good faith determination of a borrower’s ability to repay a loan by evaluating their income, assets and employment. But these products sidestep those rules because they’re characterized as investments, not loans, in most states.
At the heart of the debate is whether HEIs are loans disguised under different names that allow companies to sidestep traditional lending rules and consumer protections. Customers and consumer rights organizations have sued HEI companies, alleging they sold predatory and deceptive products.
While Pennsylvania and North Carolina officials debate the future of HEIs, Maryland, Connecticut and Illinois are among the states that have passed regulations characterizing these products as loans. Some of the passed regulations include additional payoff disclosures, payment caps or a requirement that consumers seek counseling before entering an agreement.
Contract terms can be complicated
At the heart of the HEI agreement is that you are giving up a share of your home’s future value in exchange for a lump sum of cash. While you can request a specific amount, some companies cap the amount they advance you based on evaluations of your home’s future value.
“You’ve already seen so many complaints with people not fully understanding this, just like with reverse mortgages or even student loans,” says Knutson. “There are people signing up for some really hefty situations that they just don’t understand how to navigate well over the long term.”
There’s no standard industry practice for how HEI companies calculate your home’s value at the beginning of the contract and what you owe when your contract ends. A number of companies calculate the appraised value of the home, discount it and come up with a risk-adjusted “starting property value.” These differences can significantly affect your final payment, which could be substantially more than the money you received upfront.
You may face restrictions
With an HEA, the company has a financial stake in your home, and that can come with certain conditions.
Depending on the company, it may put a lien on your house. If you can’t pay the agreement back, there is a risk of foreclosure. The investment company might not be a completely silent partner, either. You typically need approval from the HEI company before renting out, selling the home or refinancing your existing mortgage.
Also, HEIs “follow the title,” not the borrower. That means if you die with the agreement still in place, anyone who inherits the home also inherits the agreement. Though not personally liable, they will have to settle the lien by paying it in full or selling the home.
With divorce, the options for shared equity agreements and the marital home are typically the same. The two parties have to agree if they will sell the house and split the proceeds. If the home is sold, the investment firm gets paid out of the proceeds. If one spouse retains it, they retain liability for the agreement until the contract ends.
When does a home equity sharing agreement make sense?
For most homeowners, the answer is almost never.
Although the certified financial planners (CFPs) we spoke to caution that HEIs aren’t a good fit for most homeowners, they say the product may be the only option in exceptional circumstances.
For example, King says someone with most of their wealth in their home might need an HEI because of a life-or-death situation or significant medical expense. She adds that someone expecting an inheritance or lump sum to pay the agreement in the future could find an HEI more appealing, but remember that the future money isn’t guaranteed.
Knutson says HEIs could work for some retired or fixed-income homeowners who need cash and don’t plan to use their equity for financial planning goals or estate planning, like leaving the property to heirs.
Both CFPs agree that a home equity agreement should be a last resort option for people who can’t qualify for a home equity loan or a HELOC. If poor credit, low income or high debt is keeping you from getting approved, it’s best to address those issues before taking on a HEI, if possible. The same goes if you are struggling financially and you need the lack of monthly payments to make the agreement work.
“This is a band-aid, and you don’t need a band-aid to live healthy and wealthy,” says King. “Financial well-being is not about just putting band-aids. It’s about creating a financial structure that’s going to sustain you for a long time, and this [a home equity agreement] is not sustainable.”
But even when an HEI seems like the only way forward, these agreements only make sense if you fully understand how the contract works and have a realistic plan to pay it back.
“Just saying, ‘I can get a bunch of money; I don’t care if it costs me 20%, 30%, or 40%’—that’s not a great strategy, and it can hurt people pretty quick,” says Kurt Whitesell, certified financial planner and president of Summit Wealth Group, a wealth management firm. “You could end up getting in a bad situation down the road where the expense is greater than the benefit.”
Consider alternatives before seeking a home equity investment
Before considering a home equity sharing agreement, it’s worth looking at some other options first. Depending on your credit and how much money you need, another type of financing still might work.
- Home equity loans
-
Home equity loans let you borrow against your home’s equity, receive a lump sum and repay it in monthly payments. They have fixed rates, and you will know upfront how much you owe and when the debt will be paid off. You also benefit from lending protections like TILA and Dodd-Frank.
While most lenders want a credit score in the mid-600s to qualify, that doesn’t mean you won’t be approved if your score is lower. You may still qualify for the loan, but the trade-off may be a higher rate.
- HELOCs
-
HELOCs, more formally known as a home equity line of credit, work a little differently. You can borrow money as needed up to an approved limit, similar to a credit card, for a set period of time. You then repay that amount, plus interest, over 15 to 20 years.
A HELOC has the same federal protections as a home equity loan, making it a much less risky option than a home equity agreement. While lenders look for a mid-600s credit score, some credit unions may be more flexible with their requirements, but you may be charged a higher rate in this instance as well.
- Personal loans
-
If you’d rather not put your home on the line, a personal loan is an option. But note: you won’t be able to borrow as much as you would with any of the other products. Personal loan rates are also more than double what you would find on a HELOC or home equity loan. If you want to avoid risking your home, the higher rates may be worth the tradeoff.
Yes, you’ll have to pay interest for all these options, and they have higher credit standards, but the amount will be less than the appreciation you pay the shared-equity investor. Even if your home appreciates significantly, you may end up paying more in the long run than you would for a traditional home equity product.
But aside from these financing options, selling your home and moving to a less expensive property could be another way to access cash, but even that isn’t guaranteed. Depending on your mortgage balance and selling costs, you may be able to walk away with some cash while reducing your housing expenses without having to take out an HEI.
“Sometimes it makes sense for people to downsize as opposed to getting into a contract that they don’t understand,” says Whitesell.
Should you sign a home equity sharing agreement?
Before signing a home equity sharing agreement, make sure to compare the offer with other ones, if you can.
But if you are still sure an HEI is the best for your situation, make sure you read the fine print. Each HEI company has different contracts, terms, calculations and restrictions. This is not the type of agreement to go it alone. Before you sign, enlist the help of an impartial third party like a housing counselor or real estate attorney who can go over the contract with a fine-toothed comb.
Don’t just focus on what a home equity agreement gives you today. Make sure you also understand the trade-offs and have a plan for settling the agreement before committing.
Why we ask for feedback Your feedback helps us improve our content and services. It takes less than a minute to complete.
Your responses are anonymous and will only be used for improving our website.
