On this page 7 sections
In short
- Monthly payment: an HEI has none. A HELOC requires one.
- Total cost: in the CFPB's example, the HEI cost more than a HELOC unless the home lost at least 5% of its value.
- Qualifying: HELOCs often have stricter underwriting. Some HEI companies advertise no income requirement.
- The end: an HEI is repaid in one lump sum, which can mean selling or refinancing.
HELOCFacts is not affiliated with or endorsed by Point, Splitero, Hometap, Unlock or Unison. Company names are used only to describe how their contracts are structured.
Side by side
| Home equity investment | HELOC | |
|---|---|---|
| Monthly payment | None | Yes. On some programs it covers only interest during the draw period |
| How the cost works | A share of your home's value or its change in value, often limited by a yearly cap | Interest on what you draw, usually at a variable rate |
| If your home's value rises | You owe more | No effect on what you owe |
| If your home's value falls | Some contracts share the loss | No effect on what you owe |
| Upfront fees | Processing fees are often 3% to 5% of the payment, plus third-party costs | Varies by lender; ask for itemized fees |
| Qualifying | Often looser; some companies advertise no income requirement | Credit, income, debt-to-income and equity |
| Paying it back | One lump sum by the end of the term, often 10 to 30 years | Over the draw and repayment periods |
| Main risk | A large lump sum at the end can force a sale or refinance | Rate increases; the line can be frozen or reduced in limited cases |
Which costs more?
Usually the HEI, if your home appreciates. In the CFPB's January 2025 example, the home equity contract cost more overall than a HELOC whenever the home gained value, and under the strongest appreciation scenarios the homeowner repaid more than twice as much. It came out cheaper only if the home lost at least 5% of its value.
The HELOC's cost is easier to predict: interest on what you borrow, plus fees. The HEI's cost depends on a home value nobody knows yet, and many contracts' caps work like a maximum interest rate on the money you received. See how HEI payoffs work.
When each may fit
| An HEI may fit if... | A HELOC may fit if... |
|---|---|
| You can't carry another monthly payment | You can afford the payment |
| You plan to sell within the term and settle from the proceeds | You want to keep more of your home's future appreciation |
| You don't qualify for a HELOC | You qualify, or a different HELOC program may approve you |
If a HELOC denial is what's pushing you toward an HEI, find out why first. The reason may point to a program that looks at income differently. See why HELOCs get denied and bank statement HELOCs.
Already have an HEI? Paying it off with a HELOC
A HELOC or home equity loan can pay off an HEI at closing. It works when three things line up:
- You have enough equity: your mortgage plus the HEI payoff has to fit within the lender's combined loan-to-value limit.
- You can afford the new monthly payment.
- The payoff is growing faster than the interest would cost. The HEI payoff calculator compares the two at a rate you enter.
Get a written payoff statement from your HEI company first. Some lenders don't close loans that pay off an HEI, so ask before you apply.
Taxes
HELOC interest is deductible as home mortgage interest only if the money buys, builds or substantially improves the home that secures it, under IRS Publication 936. How an HEI is treated for taxes depends on the contract. Ask a tax professional about either.
Have your payoff estimate?
A licensed loan officer can compare it with HELOC and home equity loan options, including whether you'd have enough equity after the payoff.
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Frequently asked questions
Is an HEI cheaper than a HELOC?
Usually not if your home's value rises. In the CFPB's example, the home equity contract cost less only if the home lost at least 5% of its value.
Can I get an HEI if I was denied a HELOC?
Often, because HEI underwriting tends to be looser. Get the denial reasons first; a different HELOC program may approve you at a lower total cost.
Can I use a HELOC to pay off an HEI?
Yes, if your mortgage plus the payoff fits within the lender's limit and you can afford the payment. Some lenders won't pay off an HEI, so ask first.
What happens if I can't repay an HEI at the end of the term?
You'd need to sell, refinance or use other assets. The CFPB warns homeowners could be forced to sell, and companies could start foreclosure in some circumstances.
Questions about your own situation? Contact a licensed loan officer. It's optional, and your information is not sold to lead marketplaces.