Comparison of Home Equity Agreements and HELOCs

Homeowners seeking to access home equity have different options depending on their financial needs and repayment capabilities. A Home Equity Line of Credit (HELOC) functions as a revolving line of credit, similar to a credit card, where borrowers can draw funds during a set period. HELOCs typically require monthly interest-only payments during the draw period, followed by principal and interest payments during a repayment period. Interest rates for HELOCs are often variable and tied to market rates.

In contrast, a home equity agreement, also known as a home equity investment or sharing, provides a lump sum of cash upfront without requiring regular monthly payments. Instead of interest, the provider receives a portion of the home’s future value or appreciation. The investment is typically settled through a buyout, refinancing, or the sale of the home. While HELOCs involve monthly debt obligations, home equity agreements defer repayment until a future settlement event occurs.