What Is a Home Equity Investment? | 2025

A new way to access your home’s equity

If you’ve built up equity in your home but aren’t interested in taking on more debt, you might wonder what other options are available. Traditional choices like cash-out refinancing or HELOCs come with monthly payments and interest, which aren’t always ideal. But there’s another path to consider—one that lets you unlock your home’s value without adding a second mortgage.

A home equity investment or “equity sharing agreement” offers a fresh approach to accessing your equity. Interested? Keep reading to see if this option could be the right fit for your financial goals.

In this article (Skip to...)

• About home equity investments
• How equity sharing works
• Pros and cons
• Types
• Who should do it?
• How to qualify
• Alternatives

What is a home equity investment?

A home equity investment, also called an “equity sharing agreement,” is a relatively new financial product that allows you to sell equity in your home in exchange for an upfront cash payment. But this is not a loan, and no monthly payments are required. Also, it doesn’t involve taking on debt or selling your home.

By contrast, most homeowners who want to access their home’s cash value need to either refinance their mortgage, take out a second mortgage, or sell the property. In a high-rate environment, taking on a new home loan may not sound very appealing. And that’s where equity sharing agreements come into play.

With this arrangement, you partner with a home equity investment company and get fast cash by selling a portion of the home equity you’ve accrued.

How do home equity investments work?

Here’s a step-by-step breakdown of how a typical home equity agreement works:

1. Apply and Get Approved: The homeowner applies for a home equity agreement with an investment company, which evaluates the property’s value, the homeowner’s equity, and other factors to approve the application.
2. Receive a Lump-Sum Payment: Once approved, the investment company provides the homeowner with a lump-sum payment. This amount is based on the agreed percentage of the home’s current value.
3. No Monthly Payments or Interest: Unlike a loan, the homeowner doesn’t make monthly payments or accrue interest. The agreement is a shared equity investment, not debt.
4. Term of the Agreement: The homeowner has a set time frame to fulfill the agreement, typically between 10 and 30 years. Alternatively, the agreement may end when the property is sold.
5. Settlement: When the agreement ends, either through a sale or at the end of the term, the homeowner settles by paying the investment company its agreed-upon share of the home’s appreciation (or, in some cases, depreciation).

This process offers homeowners immediate access to cash while sharing in the risks and rewards of future changes in property value.

What are the pros and cons of home equity investments?

Home equity investments come with both benefits and drawbacks, making it important to weigh the pros and cons before committing to an agreement. Here’s a quick breakdown to help you decide if this option aligns with your financial goals.

Pros:

• Allows you to access home equity without taking on additional debt, unlike a cash-out refinance, home equity loan, or HELOC.
• No monthly payments are required, which can be especially helpful for homeowners with limited cash flow.
• The amount you owe the investor adjusts with your home’s value—if your home decreases in value, the repayment amount also decreases.
• Shared appreciation models often provide a long repayment term (typically 10 years or more), giving you flexibility.
• No payments are required until the term ends, unless you sell or refinance your home earlier.

Cons:

• If your home value increases significantly, you could end up paying the investor a much higher return compared to what you’d pay with a traditional loan at a fixed interest rate.
• The rate of return owed to the investor depends on factors like market conditions, the home’s value, and the original agreement terms.
• These agreements can be complex and may be difficult for homeowners to fully understand, especially when it comes to legal and financial implications.
• Many homeowners may not have the necessary knowledge of securities laws to fully appreciate the risks involved.

What are the different types of home equity sharing agreements?

There are two primary types of home equity sharing agreements, both of which involve receiving a lump sum of cash upfront. The key difference lies in how the investor is compensated when the agreement ends.

Appreciation Share Model
In this model, you’re required to repay the initial investment amount, plus a predetermined percentage of your home’s future appreciation, if any.

Home Equity Model
With this approach, instead of repaying the original amount you received, you pay the investor a percentage of your home’s value at the time of sale. If your home’s value decreases, the investor’s share will also decrease—potentially resulting in you paying back less than the amount you originally received.

It’s important to note that investors account for the risks associated with tying their returns to your home’s future value. Often, they adjust your home’s appraisal value conservatively to ensure they benefit from some level of appreciation.

Who should consider a home equity investment?

Tapping your home equity can have big benefits. Maybe you want to consolidate high-interest debt or pay off your student loans. Perhaps you want to fund a costly home improvement project or make a down payment on an investment property. Or you’re ready to launch a new business venture. Whatever the reason, liquidating home equity can offer a quick cash solution.

Home equity investments may be a good option for homeowners looking to extract home equity and increase cash flow without getting into further debt or having to make monthly payments.

“Home equity investments are also attractive for homeowners with a high debt-to-income ratio or who don’t have excellent credit, as home equity investments tend to have more forgiving eligibility criteria,” Latham continues.

A home equity investment can also provide an option for homeowners who may not qualify for other home equity loans or simply don’t want to take on debt.

“Perhaps you are self-employed or have variable income. Or maybe you are temporarily unemployed or dealing with unexpected medical costs. As interest rates and the cost of debt increases, home equity investments become especially appealing to a wide range of homeowners because there are no monthly payments or interest attached,” says Rachel Keohan, vice president of Marketing for Boston-based Hometap.

How to qualify for a home equity investment

To be eligible for a home equity investment, you’ll need to meet specific criteria.

“With our company [Hometap], for example, we typically only invest in properties where the homeowner has at least 25% equity built up in their home,” says Keohan. “So if the loan-to-value (LTV) ratio is greater than 75%, Hometap may not be the best fit.”

McCann cautions that your mortgage lender may not allow you to enter into an equity sharing agreement, or you may be penalized for doing so.

Some mortgage companies charge a penalty to borrowers who enter into an equity sharing agreement. Check with your mortgage lender before opting into a home equity investment.

“Often, the loan documents on the mortgage-secured loan prevent the homeowner from selling a portion of the equity in their home without suffering adverse repercussions,” says McCann.

Do your due diligence before committing to a home equity investment agreement. While reviews from financial websites are certainly helpful, consumer review sites like Trustpilot can help you get a better sense of real homeowner experiences.

“Shop around among different home equity investment companies, compare multiple offers before accepting one, and read all fine print carefully,” recommends Latham.

Also, check with your mortgage lender to ensure there are no penalties for entering into an equity sharing agreement, and consider enlisting an attorney to review the agreements and documentation.

Alternative ways to get equity out of your home

A home equity investment or shared equity agreement is not your only choice if you want to access your home’s cash value. If you qualify, you can instead extract equity from your home via:

• A home equity loan, which serves as a secured second mortgage and pays a lump sum at closing
• A home equity line of credit (HELOC) that you can draw from and repay as needed
• A cash-out refinance, which involves taking out equity while also refinancing your primary mortgage loan
• A reverse mortgage if you are age 62 or older

One of these options may serve your needs without offering up a portion of your future equity gains.

If you’re not sure about the best way to tap your home equity, contact a mortgage lender or financial advisor who can walk you through your options in detail and help you choose the best product for your financial situation.