Home equity
Home equity investments: the fine print
The short answer
No monthly payment doesn't mean no cost. The end of the term is where it lands.
- The whole balance comes due at the end of the term — a balloon. If you can't pay it, you may have to sell the home.
- Many HEIs value your home below market at the start, which raises their share.
- In a rising market, the appreciation share can dwarf loan interest.
- A drop in your home's value can still leave you owing the original amount.
- The catch: the biggest risk is the balloon — the full settlement is due at term's end, and with no plan to pay it, that can force a sale.
The fine print that costs people money
A home equity investment hands you a lump sum with no monthly payment. In exchange, the company takes a share of what your home is worth later. A few terms decide how much that costs. Check each one before you sign.
- The balloon at the end. The settlement is a lump sum, due when the term closes or you sell. With no plan to fund it, that can mean selling the home to pay them.
- The discounted starting value. A home valued below market at signing quietly increases the share they collect. Ask how the starting value was set and how it compares to a full appraisal.
- The appreciation share in a hot market. The more your home rises, the more you owe. Model the strong-market case, not the flat one, so the number doesn't surprise you.
- The downside floor. Many agreements still require repaying the original amount even if your home falls in value. Read what happens when prices drop.
- Maintenance and occupancy terms. Some contracts require you to maintain the home and can penalize neglect. Know what upkeep the deal expects of you.
⚠ The catch
Run the buyout under both a flat and a rising market before signing. The rising-market number is the one that hurts, and it's the one people skip.
If you can't fund the end-of-term settlement, an HEI can cost you the house. See what it really costs and run your own figures in the HEI calculator.