Back in January 2025, the CFPB’s Issue Spotlight on Home Equity Contracts documented something worth sitting with: a $50,000 upfront advance from a home equity sharing agreement could require $94,074 to $215,892 at settlement, with implied annual costs of 19.5% to 22% in the early years of the contract. That range is why this comparison exists.
A home equity sharing agreement (also marketed as HEI or shared appreciation agreement) is a contract that pays a homeowner cash today in exchange for a percentage of the home’s future value at sale, refinance, or the end of a 10 to 30 year term. A HELOC is different – it’s a revolving second-lien loan with a variable rate, currently averaging 7.23% to 7.43% per Bankrate and LendingTree.
This article compares financial products with significant long-term cost implications. It is educational and not financial, tax, or legal advice. Verify current provider terms and consult a licensed CPA and, where applicable, a licensed attorney before signing any home equity contract.
Quick Comparison Table: HEA vs HELOC on 8 Dimensions
| Dimension | Home Equity Sharing Agreement | HELOC |
|---|---|---|
| Monthly payment | None | Interest during draw, P&I in repayment |
| Rate structure | No stated APR; share of appreciation | Variable, 7.23%-7.43% avg (July 2026) |
| Credit minimum | As low as 500 | Typically 680; some to 620 |
| DTI requirement | Property-focused underwriting | 43%, up to 50% for strong files |
| Origination cost | 3%-5% plus third-party fees | Closing costs, often $0-$500 |
| Term | 10 to 30 years | 10-year draw plus 20-year repayment |
| Consumer protection | State-by-state; TILA not extended | Full TILA/Reg Z coverage |
| Payoff flexibility | Contract-defined; some allow partial buyback | Any-time payoff |
What Is a Home Equity Sharing Agreement?
Point, Hometap, Unison and Unlock all sell versions of the same product. The company writes the homeowner a check today. In return, it holds a lien on the property and a contractual right to a share of the home’s value at settlement. Settlement gets triggered by three events: sale of the home, refinance of the senior mortgage, or expiration of the contract term. Hometap and Unlock use a 10-year term; Point and Unison use 30 years.
Here’s where it gets interesting. The contract isn’t a loan under current federal law. There’s no promissory note, no scheduled interest, no monthly amortization. That distinction is the industry’s legal position, and it’s why TILA disclosures, APR calculations and Regulation Z don’t currently apply. The CFPB flagged this classification as a consumer risk in its January 2025 spotlight. Senate Bill 4803, introduced June 17, 2026, would amend TILA to close that gap. The bill’s status is pending; verify at publish.
At settlement, the homeowner pays back the original advance plus the company’s contracted share of appreciation, in one lump sum. There’s no partial monthly retirement of the balance. If the home has appreciated, the check is larger – sometimes considerably so. Some contracts also include a floor (a minimum return the company gets even in a flat or declining market), which is worth reading closely before you sign anything.
What Is a HELOC?
A HELOC is a revolving credit line secured by a second lien on the home. During the draw period, typically 10 years, the borrower pulls funds as needed and pays interest on the outstanding balance. After the draw ends, the balance amortizes as principal and interest over 20 years. Rates are variable and tied to prime. The current national average sits at 7.23% to 7.43%.
And here’s the part that matters legally: HELOCs are covered by TILA and Regulation Z § 1026.40. That means required disclosures, a three-day right of rescission on the primary residence, freeze-notice rights, and a defined billing cycle. The borrower keeps 100% of the home’s appreciation.
Cost Comparison on a $50,000 Draw
Take $50,000 as the working figure. A HELOC at 7.35% carries interest of roughly $306 per month during the draw period, or about $3,675 per year. Over seven years of interest-only draws, the borrower spends around $25,700 in interest and still owes the $50,000 principal. Paying the balance down inside the draw window shrinks that number.
The HEA side works differently. Per the CFPB’s January 2025 Issue Spotlight, that same $50,000 advance could require $94,074 to $215,892 at settlement, depending on the appreciation trajectory and contract term. The CFPB attributed implied annual costs of 19.5% to 22% in the early years of these contracts. Those figures are the CFPB’s, not MRB’s, and they’re worth reading in the source report before you sign anything.
So does “no monthly payment” mean cheaper? Almost never. A HELOC borrower writes a check every month; an HEA borrower writes no monthly check, then writes one very large check when the contract ends. In a market appreciating around 8% annually, HELOC math beats HEA math by a meaningful margin over seven to ten years on a comparable draw.
“No monthly payment” isn’t the same as cheaper.
Qualification: Who Actually Gets Approved
HELOC underwriting looks at credit score, debt-to-income ratio and documented income. Most lenders want a FICO of 680 or higher. A handful will go to 620 with compensating factors. DTI caps at 43% for most files and 50% for strong ones. Combined loan-to-value limits also apply, and the interaction with a first mortgage often decides the approval.
HEA underwriting is property-first. Providers report approving borrowers with FICO scores as low as 500. Income documentation for W-2 borrowers is lighter, and self-employed applicants who can’t clear a HELOC because of tax-return volatility can often qualify. That opens the door for a real segment of homeowners – high-DTI or credit-impaired borrowers and 1099 earners who need liquidity and can’t service a variable-rate second-lien payment.
Settlement, Exit, and Refinance Friction
A HELOC can be paid off any time without penalty on most contracts. Refinancing the first mortgage requires the HELOC lender to sign a subordination agreement, a process MRB covers in HELOC subordination during a refinance.
An HEA doesn’t offer that flexibility by default. Unlock allows partial buybacks at contractually defined valuation checkpoints. Unison doesn’t offer early-exit buybacks, and some contracts include prepayment terms that make an early payoff expensive. Refinancing the first mortgage while an HEA is in place requires the HEA holder to either subordinate or accept payoff, and HEA providers aren’t always willing to subordinate on the same terms a bank HELOC lender will – not at signing, and not later when the homeowner is already deep into the refinance process with fewer options on the table. Homeowners routinely underestimate this friction at signing, and by the time they discover it, they’re negotiating from weakness.
Payment shock is a separate concern on the HELOC side. When the draw period ends and principal amortization begins, monthly payments can jump sharply. MRB’s post on end-of-draw payment shock walks through the math.
Tax Treatment
HELOC interest may be deductible under the TCJA rules preserved by OBBBA, if the funds were used to buy, build, or substantially improve the home securing the loan, and subject to the $750,000 combined mortgage cap. The specifics are in MRB’s post on HELOC interest is potentially deductible under TCJA rules.
HEA settlement is a different animal. Because the contract is structured as an equity investment rather than a loan, the standard mortgage interest deduction generally doesn’t apply to the appreciation share paid at settlement. And when the home is sold, the settlement payment can affect the capital gains calculation. Tax outcomes here aren’t established as deductible mortgage interest and may carry capital-gains implications on sale. Consult a licensed CPA before assuming any tax treatment.
Regulation in 2026
The CFPB’s Issue Spotlight on Home Equity Contracts (January 2025) documented the market and issued a consumer advisory the same month. But the Bureau didn’t create new federal rules. The report is still the closest thing to an official federal position on these contracts, and it’s regularly cited in state-level rulemaking.
Illinois moved first. As of June 1, 2026, home equity investments are regulated under the Residential Mortgage License Act – a 36% APR repayment cap that voids noncompliant contracts, a mandatory 5-year minimum contract term, and mandatory pre-signing counseling for the borrower. All three are provisions the industry has resisted at the federal level.
Connecticut enacted a shared appreciation agreement disclosure law effective October 1, 2025. The Connecticut rule focuses on disclosure content rather than a rate cap.
Worth knowing: Senate Bill 4803, the Home Equity Lending Integrity Act, was introduced June 17, 2026. If enacted, it would amend TILA to bring HEIs into the standard loan disclosure regime and end the “not a loan” classification at the federal level. Verify current status before publish.
And other states are watching. California, Washington, Oregon and Maryland are reportedly considering similar rules.
When Each Product Fits
An HEA is defensible when a homeowner has meaningful equity, needs three to seven years of liquidity, and can’t qualify for or service a HELOC payment. Low credit scores, high DTI ratios and self-employed borrowers with volatile documented income all fit that profile. A homeowner who plans to sell inside the contract term also has a defined exit that lines up with settlement.
A HELOC is the better product for a borrower who qualifies at a 680+ FICO with a manageable DTI and can service the monthly interest payment. Total cost is lower, tax treatment is clearer, exit flexibility is greater, and consumer protection sits inside TILA. So a HELOC is the wrong tool when the borrower can’t afford the payment. An HEA is the wrong tool when the borrower can.
But neither may be right. A fixed-rate home equity loan (HELOAN) delivers predictable payments without variable-rate exposure. A cash-out refinance can reset the entire mortgage at a lower blended rate. MRB’s guide on how to run a break-even analysis on a cash-out refinance shows when that math actually works.
Frequently Asked Questions
Is a home equity sharing agreement a loan? Not under current federal classification. TILA and Regulation Z don’t extend to HEIs today. Senate Bill 4803 would change that if enacted.
What credit score do you need for an HEA? Some providers approve FICO scores as low as 500. HELOC underwriting typically requires 680.
How much does an HEA cost compared to a HELOC? The CFPB documented $94,074 to $215,892 at settlement on a $50,000 advance, with implied annual costs of 19.5% to 22% in early years. A HELOC at the July 2026 average of 7.23% to 7.43% costs roughly $3,600 per year in interest on the same draw.
Can you pay off an HEA early? Some contracts allow partial buyback. Others don’t, or apply prepayment terms. Read the contract before signing.
Does Illinois cap the APR on HEIs? Yes. Effective June 1, 2026, Illinois caps HEI repayment at a 36% APR and voids contracts that exceed it.