With home values at or near record highs, many homeowners—especially retirees—are exploring ways to convert equity into cash.
While the Home Equity Conversion Mortgage (HECM) has been a trusted solution for decades, Home Equity Investments (HEIs), also known as home equity sharing agreements, are a newer, less regulated option.
Though both offer access to equity with deferred repayment, the similarities end there.
This guide breaks down the differences, highlights potential risks, and helps you make a more informed decision about how best to leverage your home’s value.
HECM: A Time-Tested, Regulated Reverse Mortgage
A Home Equity Conversion Mortgage (HECM) is a federally insured reverse mortgage designed for homeowners aged 62 or older. It converts a portion of your home’s equity into cash—through a lump sum, monthly payments, or a line of credit—without monthly mortgage payments (you’re still responsible for property taxes, insurance, and maintenance).
If an existing mortgage is in place, HECM proceeds are first used to pay it off—effectively transforming a mandatory monthly mortgage payment into an optional one. Any remaining funds are available to the borrower.
Interest and mortgage insurance premiums are added to the loan balance, which generally increases the loan balance over time with repayment deferred. Voluntary prepayments are allowed at any time. The loan typically becomes due when the last surviving borrower moves out, passes away, or fails to meet loan terms (e.g., non-payment of property taxes).
Backed by the U.S. Department of Housing and Urban Development (HUD), HECM consumer protections include:
- Mandatory third-party counseling to ensure borrowers understand the product
- Transparent disclosures
- A non-recourse feature: You or your heirs never owe more than the home’s value when the loan is repaid*
HECMs have been available for over 35 years and are commonly used to help older homeowners age in place, supplement retirement income, or cover long-term care costs. To qualify, borrowers must be at least 62 years old, have at least 50% equity in their home, and demonstrate the ability and willingness to keep up with property-related expenses such as taxes, insurance, and maintenance.
HEIs: Promising Simplicity, Delivering Complexity
Home Equity Investments (HEIs)—also known as home equity sharing agreements—allow homeowners to access a lump sum of cash in exchange for a share of their home’s future value. Repayment is due in one lump sum, typically at the end of an agreed-upon term (10 to 30 years) or when the home is sold.
Unlike a HECM, HEIs do not require you to pay off your existing mortgage. That means you’ll still be responsible for those monthly payments. Additionally, there is no interest—but there is a share of your home’s future value owed, which may be significantly higher than the cash you initially received.
Upfront, it may sound appealing: no monthly payments and no interest. But in reality, repayment is tied to future appreciation, and depending on the market, you could owe more than twice what you received.
Making home renovations after signing an HEI may increase your home’s value, but you may not receive the full benefit of that appreciation—your investor will likely benefit.
HEIs are not federally regulated and do not require third-party counseling. This lack of oversight has led to:
- Confusing contract language
- Reports of misleading marketing
- Legal scrutiny in multiple states
HEIs are generally available to homeowners with at least 20–25% equity and credit scores as low as 500. Most require a home appraisal and charge 3–5% origination fees, plus appraisal, inspection, title, and escrow costs (sometimes deducted from your payout).**
HECM vs. HEI: Compare at a Glance
| HECM (Reverse Mortgage) | HEI (Home Equity Investment | |
|---|---|---|
| Payout Options | Lump sum, monthly, or LOC | Lump sum |
| Age Eligibility | Homeowners aged 62+ | No age restriction |
| Risk Adjustment | N/A | 2–30% of value |
| Pays Off Existing Mortgage | Yes | No—you continue your current mortgage |
| Minimum Equity (approximate) | 50% | 25% |
| Repayment Method | Repay loan balance (borrower or heirs can never owe more than value of home when home is sold to repay loan)* | A share of future appreciation (can be 2x or more) |
| Monthly P&I Mortgage Payments | None required (just property taxes, insurance, and upkeep) | None, but you must pay your existing mortgage |
| Term | Life in home | Agreed upon term (10 to 30 years or whenever home is sold) |
| Equity Ownership | You keep 100% of future appreciation (must satisfy loan balance when due and payable) | Investor shares in future appreciation |
Hypothetical Repayment / Loan Balance Scenario**
HEI Repayment—10 Year Term
Your home is worth $600,000. You receive $60,000 from an HEI provider in exchange for a 10% stake in your home, with a 10% risk adjustment rate.
In 10 years, your home is worth $1,200,000. At that point, you owe:
- The $60,000 original investment
- 10% of the $600,000 appreciation = $60,000
- Plus, an additional $60,000 for the 10% risk adjustment
Total repayment: $180,000
HECM Repayment—No Set Due Date
Let’s assume the same housing appreciation situation. Your home is worth $600,000. You receive $276,000 in loan proceeds from a HECM, with the closing cost rolled into the loan.
In 10 years, your home is worth $1,200,000. At that point, you do not have to repay the loan balance if you are still currently residing in the home and meeting your loan obligations. Repayment is deferred, not forgiven—loan balance is repaid when the home is sold or a maturity event occurs.*
- The $276,000 initial loan
- Assuming a 7.5% effective rate (interest rate + MIP) and no voluntary prepayments, your loan balance grows to $562,000
- Loan balance isn’t due and payable – you can continue to live in home and defer repayment until a maturity event happens (e.g., last surviving borrower moves out or passes away)
- The sale of the home always satisfies the loan, regardless of if the loan balance were to exceed the value of the home*
Total repayment: $0 at this time
The Regulatory Landscape
HEIs operate in a legal gray zone. Some courts have ruled they are not “loans,” exempting them from many lending laws, including the Truth in Lending Act. But states are pushing back:
- Connecticut now classifies HEIs as residential mortgage loans
- Maryland requires HEI licensing and expanded consumer disclosures
- Lawsuits have been filed against major HEI providers such as Unison, Hometap, and EasyKnock
The federal government has yet to issue formal guidance, but growing scrutiny could lead to national oversight.
Bottom Line: Know What You’re Signing Up For
HECMs are federally regulated financial tools designed for older homeowners. They offer clear terms, strong consumer protections, and flexible repayment options.
HEIs, while appealing on the surface, can carry steep long-term costs and lack the safety nets built into traditional mortgage products. What feels like a simple solution today can result in a massive equity loss down the road depending on the appreciation trend.
“In most cases, I would recommend a reverse mortgage over an HEI,” says Gina Di Giusto, senior attorney at Housing and Economic Rights Advocates (HERA). “The terms are clear, and you know what you’ll owe.”
Before signing any equity-sharing agreement, make sure you:
- Seek third-party advice or counseling
- Understand how and when repayment is due
- Know what portion of appreciation you’ll be giving up
- Compare all options, including HECMs, home equity loans, and HELOCs
Let’s Start a Conversation!
If you’re interested in learning more about HECM loans and if one might be right for you or a loved one, connect with me today.
*There are some circumstances that will cause the loan to mature and the balance to become due and payable. Borrower is still responsible for paying property taxes and insurance and maintaining the home. Credit subject to age, property and some limited debt qualifications. Program rates, fees, terms and conditions are not available in all states and subject to change.
**This is an educational example of one HEI. Requirements, payment, and other terms may vary between investors.
