If you’re a Massachusetts homeowner in need of cash, tapping into your home equity is a common solution. Most people are familiar with home equity loans and home equity lines of credit (HELOCs)—but there’s a lesser-known option: the home equity agreement, or HEA.
So, why might you choose an HEA over a HELOC or a traditional home equity loan? It often comes down to how, and when, you want to repay what you borrow.
A HELOC works like a credit card tied to your home’s value. Once approved, you can borrow what you need, when you need it, and pay interest only on the amount you use. This makes it ideal for ongoing projects like home renovations. However, HELOCs typically come with variable interest rates and a 10-year repayment window, which can add financial pressure.
A home equity loan, on the other hand, gives you a lump sum upfront with a fixed interest rate, usually over a 15- to 30-year term, making it more predictable, but less flexible.
Then there’s the HEA, which flips the model entirely.
What is a home equity agreement (HEA)?
A home equity agreement (HEA) allows you to access a lump sum of cash by selling a portion of your home’s future value . Instead of making monthly payments like you would with a traditional loan or HELOC, you repay the investment when you sell, refinance, or reach the end of the agreement term.
“One reason people might be thinking about an HEA is that home equity is at a record high, so there is a lot of opportunity for homeowners to tap into money that is otherwise just sitting there,” says Realtor.com ® Chief Economist Danielle Hale. Plus, with an HEA, “You’re going to pay a lower rate than you would on a credit card.”
You can use the money for anything you wish: Paying down debt, funding renovations, or even purchasing another home, says Doug Perry, a strategic financing adviser at Bethesda, MD-based Real Estate Bees .
HEA vs. HELOC: What’s the difference?
While both a home equity agreement (HEA) and a home equity line of credit (HELOC) allow you to tap into your home’s equity, they differ significantly in how they’re structured, how you access funds, and how you repay them. Understanding these differences is key to choosing the right option for your financial situation.
| Feature | Home Equity Agreement (HEA) | Home Equity Line of Credit (HELOC) |
| Payout | Lump sum | Revolving line of credit |
| Repayment | No monthly payments; repay when you sell or refinance | Monthly payments required |
| Interest | No interest | Variable interest rate |
| Credit Requirements | Easier to qualify for with lower credit or income | Typically requires a credit score of 620+ |
| Use Case | Long-term access to equity without debt | Flexible borrowing for ongoing expenses |
What to watch out for with an HEA
A home equity agreement does come with a few catches.
If you’re thinking about an HEA, you should know that it’s not yet available in every state . It’s typically serviced by private investment companies: Unlock, Point, and Unison are some of the major lenders.
Additionally, there’s typically a 3% to 5% fee upfront, and you must pay an appraisal fee as well. And you’ll need to decide if having money now is worth the heavy hit you’ll take when the home is sold.
At the time of the HEA, you and your lender will decide on the percentage of future appreciation the lender will take upon sale, which could be up to 40%.
The HEA also often comes with limitations around how and to whom you can sell your home, and what types of renovations you can make, including stipulations that you live at the home during the entirety of the loan period.
And if you thought you could get around paying the loan back by simply not selling your home, you’ll still be on the hook for the amount you borrowed at the end of the term of your loan. Depending on your lender, that period could be between 10 and 30 years.
“They’re like reverse mortgages for people that aren’t old, because you don’t have payments on them,” says Mark McDonough of Assume Loans , based in Brookline, MA .
The HEA doesn’t affect your credit-to-debt ratio, either. But you also can’t borrow as much on it as you might with a HELOC or home equity loan. Both allow you to borrow up to 80% of your home’s value. With the HEA, that number is closer to 30%.
Because of the way it’s structured, “It’s only going to hurt you if you win” in fetching a competitive price for your home, says McDonough.
For example, let’s say the appraised value of your home is $300,000 and you’d like an HEA for $50,000. The HEA investment company might agree to that in exchange for 20% of your home’s appreciation with a 10-year agreement period. If you sell the home for $400,000, that means you’ll owe the investment company $50,000 plus $20,000 (20% of the $100,000 appreciation).
Make sure to fully understand the terms of your agreement before you sign, and consider whether you’re really ready to give up current and future equity in your home for more money now.
Pros and cons of a home equity agreement
As with any financing tool, a home equity agreement has advantages and disadvantages to weigh before taking one out. While HEAs offer lower barriers to entry, they’ll cost homeowners a piece of their most valuable asset: their house.
Pros
- No monthly payments
- Easier to qualify for than a HELOC
- Lump sum of interest-free cash
- Can be used for any purpose
- Doesn’t increase your monthly debt burden
- Useful in high-interest-rate environments when refinancing isn’t ideal
- Lower entry barrier compared to traditional home equity products
Cons
- You give up a portion of your home’s future appreciation
- Not available in all states
- Only by select private lenders
- May include upfront fees
- Limits how much equity you can access
- May include restrictions on how you can use, renovate, or sell your home
Should you choose an HEA or HELOC?
The right option depends on your financial goals and personal circumstances.
A HELOC may be better if you want flexible access to funds over time, can manage monthly payments, and have strong credit.
A HEA might make more sense if you need a lump sum now, prefer not to take on monthly debt, or have limited income or credit history.
Both can be smart ways to tap into your home’s equity. Just make sure to read the fine print, weigh the long-term costs, and choose the option that best aligns with your plans.
Should you be in the midst of a divorce or contemplating divorce, contact the Law Offices of Renee Lazar at 978-844-4095 to schedule a FREE one hour no obligation consultation.
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