HEI vs. HELOC: Which Is Better for You in 2026?

Verify your HELOC eligibility. Start here

When homeowners want to tap their equity, the choice often comes down to an HEI or a HELOC. For most people who qualify, a HELOC is the better option, offering lower long-term costs and clearer, more predictable terms. An HEI can make sense if monthly payments aren’t affordable or credit is an issue, but it comes at the cost of sharing your home’s future value.

Understanding how these two options differ can help you decide which one actually fits your financial situation.

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What is equity?

Both HEIs and HELOCs require you to tap your equity. But what is home equity? It’s the difference between your current mortgage balance and the fair market value of your home at the moment.

So, suppose your home is currently worth $500,000 and your mortgage balance this morning is $350,000. Your equity is $150,000 ($500,000 value – $350,000 mortgage balance = $150,000 equity).

But it’s rare for you to be able to tap all your equity. The share of equity you can tap varies by lender and depends on your finances. It’s harder to gauge how much equity an HEI provider will want you to keep, because it’s a smaller, less regulated market.

HEI vs. HELOC: What are they?

HEIs and HELOCs are very different from each other. So, let’s look at them in more detail.

HELOC

A HELOC is a revolving line of credit secured by your home. You borrow during a draw period, then repay during a repayment period. The Consumer Financial Protection Bureau describes it as a second mortgage that works a bit like a credit card: you can borrow up to your limit, pay interest only on your balance, and borrow, repay, and borrow again during the draw period.

But there are important differences between a HELOC and a credit card. A HELOC’s draw period could last around 10 years, for example. After it ends, you go into repayment mode and pay down the balance over another set period. You may also be able to refinance your HELOC at that point.

Importantly, a HELOC is secured on your home. And, if you fall seriously behind with payments, you could face foreclosure.

HEI

A home equity investment (HEI), also called a home equity agreement (HEA), is not structured as a traditional loan. Providers market it as not a loan, so there is no set interest rate and there are no monthly payments. You are not borrowing money in the usual sense.

That means providers are less focused on your credit score and overall finances. Credit requirements are typically looser than for a HELOC and vary by provider.

So, if it’s not a loan, what is an HEI? Well, you sell a proportion of your equity to an investor in exchange for a lump sum.

As your home’s value increases and your remaining equity builds, the investor’s share of the home’s equity rises, too, in direct proportion. So, when you come to sell, the investor takes from the proceeds its initial investment plus its share of your property’s higher value.

If your home’s value falls over the period, the investor gets back the amount it paid minus its share of the reduced equity.

HEI agreements commonly run 10 to 30 years, though the exact term varies by provider, according to the CFPB. At the end of the period, you may be able to buy out the investor by paying back the original sum plus its share of any equity gain.

You might wonder how many homeowners have access to that sort of cash. Those that don’t would have to sell their home to settle up.

Although most HEIs are originated by investment companies, anyone can do so. Sometimes, parents find them a good way to help out their adult children.

What experts are saying

Thomas Brock, CFA, CPA

“An HEI can actually outperform a HELOC for borrowers with more volatile income, shorter expected time horizons, and a strong desire to avoid monthly payment risk. It tends to make the most financial sense when HELOC rates are elevated for a prolonged period and home price appreciation is expected to be limited.”

Pros and cons of HEIs vs. HELOCs

Pros and cons of HELOCs

Here are the main pros of HELOCs:

• Unusually flexible: Borrow, repay and borrow again as often as you wish
• You pay interest only on that month’s balance
• Often come with a low interest rate compared to unsecured borrowing
• Some lenders charge zero closing costs
• Cash is usually available quickly, maybe two or three weeks after your application
• Relatively mainstream, safe, regulated, transparent market with few predatory lenders

Verify your HELOC eligibility. Start here

And here are HELOC’s main cons:

• It’s a loan and you have to pay interest on balances
• After a “draw period” (typically 10 years), you can’t borrow any more
• You then enter a “repayment period” (typically 10-20 years) during which you must zero your balance — unless you can then refinance your HELOC
• A few HELOCs come with balloon payments at the end of the draw period. That means you owe all the money at once. It’s better to avoid these unless you’re confident you’ll have the necessary funds when the time comes
• Your line of credit is secured on your home. And you risk foreclosure if you fall too far behind on payments

Pros and cons of HEIs

Here are the main pros of an HEI:

• No monthly payments
• No interest building up
• Quick access to cash
• Very low credit thresholds, if any
• Often no income requirements
• Any-purpose lump sum — Use your money for anything you want

And here are HEI’s main cons:

• Your investor will take a large sum when you sell, including a chunk of “your” equity
• This is a largely unregulated market with limited transparency, so only go with reputable companies
• Most benefit from getting professional help to understand the agreement and avoid pitfalls
• Many of these agreements come with high fees and costs

HELOCs are typically the better choice for most homeowners. But an HEI may suit those whose credit or income means they cannot get a HELOC.

What experts are saying

Michael Gifford, CEO of Splitero

“The homeowners who benefit most from HEIs are often the ones who don’t have good alternatives — selling their home or using credit cards shouldn’t be the only options.”

Get up to speed with home equity agreement basics.

How to obtain a HELOC

Applying for a HELOC is a lot like applying for a normal mortgage. But most mortgage lenders turn around applications much more quickly. You may be able to get your hands on the money in only two or three weeks.

Verify your HELOC eligibility. Start here

As with all significant borrowing, you should shop around several lenders to make sure you get the best deal possible. The Consumer Financial Protection Bureau publishes a downloadable booklet that covers the whole HELOC process.

It provides a comparison chart for quotes from three lenders, though you may benefit from getting more. Comparing several lenders improves your odds of a good offer.

When you get your quotes, compare them carefully. Some mortgage lenders charge zero closing costs, which can be great. But do they charge a higher interest rate? If so, ask yourself which type of deal suits you better.

Documentation and eligibility requirements for obtaining a HELOC

Before lending to you, a mortgage lender will want to confirm your identity, check your credit score and report, and ensure you can comfortably afford the monthly payments. And they need a lot of supporting paperwork to achieve those goals.

So, prepare a bundle of documents before you make an application. These should include a government-issued photo ID and proof of your current and recent addresses going back two or three years.

In addition, you’ll likely need your latest:

• Pay stubs
• IRS returns
• Statements from your bank, broker and anyone else who manages your assets
• Statements showing your existing debts
• Employer’s details to check your employment status

If you’re your own boss, read How to Get a Mortgage When You’re Self-Employed. Some requirements are different for you.

Video: HEI vs. HELOC explained

HEI vs. HELOC: side-by-side comparison

The table below sums up how the two options compare.

Feature	HELOC	HEI
Monthly payments	Yes, during draw and repayment periods	None
Interest / cost	Variable interest rate on your balance	No interest charged; repayment is based on your home’s value
Credit needs	Standard credit and income checks	Looser than a HELOC; varies by provider
Regulation	Well established and regulated	Smaller, less regulated market
Foreclosure risk	Yes, secured on your home	Repayment tied to home value; terms vary by provider
Best for	Most homeowners who qualify on credit and income	Those blocked from a HELOC by credit or income

HEI vs. HELOC: Which is right for me?

Normally the advice is to weigh each option against your financial goals, interest-rate preferences, and risk tolerance. For an HEI versus a HELOC, the choice is usually clearer than that.

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Generally, anyone who can qualify for a HELOC will likely prefer one. HELOCs tend to be less risky, more transparent, and more predictable. There is also a good chance that their total cost of borrowing, after interest and any fees, will be lower than what an HEI investor takes by the time it cashes in its investment.

Of course, that’s not to say everyone should opt for a HELOC. Many may be shut out from applying for one by their credit score. And, if you’ve hit hard times, you may not be able to afford even the relatively modest costs of maintaining a HELOC.

Then, choosing an HEI is a perfectly legitimate decision. Just take great care when selecting an investor and reading through the agreement. It’s likely best if you take professional advice from a financial advisor, attorney or accountant.

Frequently asked questions

Is a HELOC better than an HEI?

For most homeowners who qualify on credit and income, yes. A HELOC is regulated, more predictable, and often cheaper over time. An HEI can be a better fit when credit or income rules out a HELOC.

Which is cheaper, an HEI or a HELOC?

It depends on your rate, how long you hold the agreement, and how much your home gains in value. Under most home-price scenarios, the CFPB notes an HEI repayment can be significantly larger than a comparable loan, so a HELOC is often cheaper.

Can you get an HEI with bad credit?

Often yes. HEI approval is based mainly on your home equity rather than your credit score, so requirements are usually looser than for a HELOC. Exact standards vary by provider.

What are the downsides of an HEI?

You give up a share of your home’s future value, fees can be high, and the market is largely unregulated. You may also need a large lump sum, or to sell your home, to buy out the investor at the end.

The bottom line on HEI vs HELOC

For most homeowners, there’s a clear winner in our HEI vs. HELOC contest. HELOCs tend to carry less risk and end up less costly over the period of the loan.

However, some can’t get approved for HELOCs. And they may not be able to afford one. For those, HEIs are not only the winner but the only contender.

Still, those applying for an HEI should exercise extreme caution. Most investors are probably honorable. But all largely unregulated markets attract their share of predators.

See the compare HEI companies for current offers.