Are home equity investments a good idea? Pros and cons

In January 2025 the CFPB published an issue spotlight on home equity contracts. The Consumer Financial Protection Bureau estimated the market at $2 billion to $3 billion and warned that home equity contracts share features with risky mortgage products from before the 2008 financial crisis.

• The four largest companies had originated more than 37,000 contracts.
• Cost caps of around 18% to 20%, compounded monthly, work out to about 19.5% to 22% a year.
• Consumers reported surprise at repayment amounts, confusion about how caps work, disputes over home valuations, and trouble refinancing their first mortgage.

States have acted too: our sister site tracks 4 enforcement actions and court cases, and several states now regulate these agreements. See the regulatory tracker and complaints and lawsuits by provider. Source: CFPB: Home equity contracts market overview.

Worth a look if you have plenty of equity, can't get or can't carry a HELOC or home equity loan, need the cash for years rather than months, and expect modest growth.

Skip it if you qualify for a HELOC or home equity loan, might sell within a few years, expect fast price growth, or are counting on it for a short-term gap. See every alternative compared.

1. Get the settlement amount at 0%, 4%, and 8% yearly growth, and at the year you expect to settle.
2. Put every offer through the HEI Calculator to get one comparable yearly cost.
3. Check the provider's requirements and state availability, its complaint record, and your state's rules.
4. Ask a tax professional how the agreement is taxed (why it's an open question).

Are home equity investments a good idea?

Sometimes. They can make sense if you can't get or can't afford a HELOC or home equity loan, need cash for several years, and expect modest home price growth. They're usually a poor choice if you qualify for a HELOC, might sell within a few years, or expect your home to grow fast: in our model they cost 13.7% to 15.9% a year in a typical case, and 14.7% to 22.7% if you settle after 3 years.

Is a home equity investment cheaper than a HELOC?

Usually not, if you can get the HELOC. In our typical example, HEIs cost 13.7% to 15.9% a year, against the 8.5% HELOC rate we use for comparison. See HEI vs HELOC.

When is a home equity investment worth it?

When there's no cheaper way to get the cash and you plan to hold it for years. If home prices stay flat, the cheapest provider in our model, Unison, costs 3.5% a year over 7 years.

What are the risks of a home equity investment?

You can owe much more than you received if your home grows fast, early settlement is expensive, some agreements must be settled within 10 years, and you must keep up your mortgage, taxes, and insurance or risk default. The CFPB has warned that these contracts share features with risky pre-2008 mortgage products.