Home equity agreements: how they differ from borrowing against your home

This is a different kind of agreement, not a different kind of loan

A home equity agreement, sometimes called a home equity investment or home equity contract, gives a homeowner a single up-front payment from a company. In exchange, the homeowner agrees to make one larger payment to that company in the future. The size of that future payment is tied, at least in part, to what the home is worth when the agreement ends.

That structure is why these products are often described as “not a loan,” with “no monthly payments” and “no interest.” Those phrases describe how the agreement is set up. They do not mean the money is free, and they do not mean nothing is owed. The Consumer Financial Protection Bureau (CFPB) has noted that under most home-price scenarios, the eventual repayment is significantly larger than the amount the homeowner received.

The useful way to think about a home equity agreement is as the sale of a claim on part of your home's future value. A HELOC or home equity loan asks, “How much will I borrow and how will I repay it?” A home equity agreement asks, “How much of my home's future value am I giving up, and what will that be worth when the agreement settles?”

How the repayment amount is calculated

Every company uses its own formula, and the formula is the most important part of the contract. According to the CFPB, companies generally consider the up-front payment, the home's starting value, the home's value at settlement, and a multiplier that increases the company's share relative to what it paid.

The details vary in ways that matter:

What the share applies to. Some agreements apply the company's share to the home's total value at settlement. Others apply it only to the change in value over the term.
The starting value. Some agreements use a starting value set below the appraised value. A lower starting value can increase what is owed later, because more of the home's value is treated as growth.
Improvements. Some contracts credit the homeowner for renovations that raise the home's value. Others do not, which means the company may share in value the homeowner paid to create.
Caps. Some agreements cap how fast the repayment amount can grow. Others have no cap, or a cap that applies only in certain situations.

Illustrative example from the CFPB

In an example the Consumer Financial Protection Bureau uses to describe a typical structure, a homeowner with a $500,000 home receives $50,000, equal to 10% of the home's value. In return, the company receives a 20% stake in the home's total value, which the CFPB describes as a 2x multiplier on the company's payment.

Under that structure, the company's share is worth twice what it paid before any change in the home's value is considered. If the home were still worth $500,000 at settlement, a 20% share would be $100,000. The CFPB notes that in this example the home would have to lose more than half its value before the company lost money.

Source: Consumer Financial Protection Bureau, Issue Spotlight: Home Equity Contracts: Market Overview (January 15, 2025). This example is for illustration only. It is not an offer, a quote, or a description of any specific company's terms, and it does not include fees, caps, or other contract features that can change the result.

The up-front payment may also be smaller than the headline amount. The CFPB notes that closing costs and fees, such as processing or appraisal charges, can be deducted from the cash the homeowner receives. The repayment formula, however, is usually based on the full contract amount, so fees raise the real cost of the cash that actually arrives.

Because the formula depends on a future home value that no one knows today, the fair way to evaluate an agreement is to ask for the repayment amount under several scenarios: the home's value rising, staying flat, and falling. A company should be able to show how each scenario is calculated under the contract's own terms.

What “no monthly payments” leaves out

A home equity agreement generally does not require monthly payments to the company. That can be the feature that draws people to it. But the homeowner keeps every other obligation of owning the home.

The CFPB points out that the homeowner remains responsible for property taxes, homeowners insurance, maintenance, repairs, association dues, and any mortgage or other debt already secured by the home. Falling behind on some of those obligations can itself cause the agreement to come due, which is covered in the next section.

Two other features are easy to miss. Homeowners generally cannot make partial payments to reduce what they will owe; the agreement is typically settled all at once. And while early settlement in full is usually possible, some companies restrict it or attach conditions to it. Ask how early settlement is calculated before signing, not when you are ready to use it.

When the agreement comes due

Home equity agreements typically run for 10 to 30 years. The repayment is due at the end of that term, or earlier if a triggering event occurs. The CFPB lists common triggering events, including:

Selling the home
Defaulting on the first mortgage or another senior lien
Failing to pay property taxes or keep the home insured
The death of the homeowner

The practical question is how the repayment will be made when the day comes. The CFPB notes that homeowners may need to take out a new mortgage or other debt, enter into another home equity agreement, use other savings, or sell the home. If the plan is to stay in the home long term, that final payment needs a realistic funding plan from the start.

The lien and what it can block

Although these agreements are often described as something other than a loan, the company usually secures its interest by recording a lien on the property, much like a mortgage lender does. That lien stays in place until the agreement is settled.

A lien has consequences beyond the agreement itself. It can limit the homeowner's ability to refinance the first mortgage or take out new debt against the home, because another lender may be unwilling to lend behind it or may require the agreement to be settled first. Before signing, ask how the agreement treats a future refinance, and whether the company must consent to one.

How this compares with a HELOC

A home equity line of credit (HELOC) and a home equity agreement can both turn home equity into cash, but they work in almost opposite ways. A HELOC is a loan: you borrow against a credit limit and repay what you borrow under the loan's terms. A home equity agreement is a trade: you receive cash and give up a share of the home's future value.

How the money arrives. A home equity agreement usually pays one up-front amount. A HELOC lets you draw from a limit over a set period.
How it is repaid. A HELOC has required payments under its terms and a repayment period. A home equity agreement is typically settled in one payment at the end of the term or at a triggering event.
What a rising home value means. With a HELOC, the amount owed does not grow because the home's value rises. With a home equity agreement, a higher home value generally means a larger repayment.
The lien. Both are typically secured by the home, and both can affect future borrowing.

Neither structure is right for everyone. The comparison depends on how long you plan to stay in the home, how steady your monthly cash flow is, and what the total cost looks like over the time you expect to keep the agreement or the loan. A licensed mortgage broker can explain how a home equity agreement would work in your situation and compare it with loan-based options, such as a HELOC, a home equity loan, or a cash-out refinance.

Questions to ask a licensed professional

Whether you are considering a home equity agreement or comparing it with a loan, these questions bring the real cost into view:

What would I owe if my home's value rose, stayed the same, or fell? Ask for each scenario calculated under the contract's actual formula.
Is there a cap on the repayment, and how does it work? Ask when the cap applies and when it does not.
What comes out of the up-front payment? Ask for every fee and closing cost that reduces the cash you receive.
What events would make the agreement come due early? Ask for the full list in writing.
How would this affect a future refinance? Ask whether the lien must be settled or whether the company's consent is required.
How does the total cost compare with a HELOC or home equity loan for me? Ask for the comparison over the same time horizon.

Read the agreement as a share of your home, not a loan payment

A home equity agreement can provide cash without a monthly payment, and for some homeowners that matters. But the real cost is measured in the share of the home's future value that goes to the company, and it is paid in a single amount that has to be funded one day.

Read the formula, ask for scenarios, and understand what triggers the repayment. Then compare it, over the same time frame, with the other options a licensed professional can walk you through.

This guide is general education, not loan advice. EasyHomeLender.com is not a lender, mortgage broker, or loan originator. We do not quote rates, approve loans, or set loan terms. Figures used in examples are illustrative only and are not an offer or a quote.