HEIs vs HELOCs and HELs: How To Compare the Actual Cost of Your Home Equity Options
Last updated 10/29/2025 by
Andrew LathamEdited by
Miron LulicSummary:
Leveraging home equity is a popular method to generate cash flow for investments, pay off high interest debt, or finance major expenses, but not all home equity financing products are created equal. Discover the cost and financial implications of each option.
After years of building equity in your home, it’s time to make it work for you. But before you tap into that equity, you’ll need to navigate the alphabet soup of home financing options: HELOCs, HELs, and HEIs—acronyms that can easily leave your head spinning. And let’s face it, no one wants to choke on hidden fees or surprise interest rates.
Whether it’s a Home Equity Line of Credit (HELOC), a Home Equity Loan (HEL), or a Home Equity Investment (HEI) — also known as a Home Equity Investment (HEI). Each option comes with its own set of costs, risks, and potential returns that aren’t always obvious at first glance.
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Brief overview of home equity options
Before diving into the analysis, let’s quickly define the key home equity options—HELOC, HEL, and HEI. Home equity lines of credit (HELOCs) and home equity loans (HELs) are well known, but home equity investments (HEIs), also known as home equity investments (HEIs) and shared equity agreements, may be less familiar.
- Home Equity Line of Credit (HELOC): A revolving line of credit based on your home’s equity, offering flexibility but with variable interest rates that can lead to fluctuating costs.
- Home Equity Loan (HEL): A lump sum loan with a fixed interest rate, providing predictable payments, though the interest costs can add up over time.
- Home Equity Investment (HEI): An arrangement where you receive cash upfront in exchange for a share of your home’s future value. There are no monthly payments, but keep in mind that the repayment (or settlement) amount can be substantial if your home appreciates.
While this analysis focuses on these options, a cash-out refinance is another way to access equity by replacing your mortgage with a larger one and taking the difference in cash. It can be a good option if you can lower your mortgage rate, but that’s unlikely in the current interest rate environment, so it’s not included here.
Costs of different home equity options
Understanding the costs associated with each home equity option is crucial before making a decision. The table below provides a breakdown of the key financial aspects of HELOCs, HELs, and HEIs.
The first thing to understand is that the cost of all home equity financing options will vary depending on multiple factors, such as your credit score, your home equity, and how long you take to repay the loan (or investment). So, you need to check what rates and terms you qualify for with each method to find out the best deal in your case.
In an attempt to compare apples to apples, we will be using the annual percentage rate (APR) of HELOCs and home equity loans and the annualized cost of home equity investments. Strictly speaking, home equity investments are not traditional loans, and the cost varies based on your home’s appreciation or depreciation.
Since HEIs don’t accrue interest like loans, they don’t have a formal APR. However, for comparison purposes, we can estimate an ‘annualized cost’ based on different home appreciation scenarios.
Real-life home equity options case study
It’s important to note that providing a definitive range of APR rates for home equity options can be tricky because they depend on various individual factors. These factors include the homeowner’s credit score, the amount of equity in the home, the state of the local housing market, and prevailing interest rates.
For this case study, we’ve gathered real offers from Unlock, Discover, and Aspire to give you an idea of what rates might look like for a homeowner with good credit who owns a $375,000 home on the East Coast (as of September 2024). However, keep in mind that these rates and terms are specific to this scenario. What you qualify for could differ significantly based on your personal financial situation and market conditions.
This example is intended to help you understand the potential costs and benefits of each option. Always remember to shop around and get personalized quotes to find the best fit for your circumstances. The good news is that SuperMoney provides a transparent and simple way to do just that.
| Home Equity Option | APR/Annualized Cost | Key Benefit | Terms, Conditions, and Assumptions |
|---|---|---|---|
| HELOC | 9.640% (varies depending on market conditions) | Flexibility, only borrow what you need | 30-year term: 10-year draw period with interest-only payments, followed by a 20-year repayment. Variable rates may rise, increasing payments after the draw period. |
| HEL | 7.88% | Typically lower rates, fixed terms | Fixed rate over 20 years. Lump sum disbursed at the start. Predictable monthly payments, with closing costs possible. |
| HEI | 9.59% to 16.04% (varies depending on home appreciation) | No monthly payments | 10-year term. No payments during the term. Final cost depends on home appreciation or depreciation. If your home appreciates, the repayment can be substantial, but if it depreciates, you might pay less than you would with a traditional loan. Most investors cap the total cost at 19.90%. |
SuperMoney provides educational information to help consumers compare financial products. While we strive for accuracy, details may not reflect real-time changes in rates and terms. SuperMoney is not a financial advisor, and users should consult professionals for personalized advice. Rates and terms vary based on individual circumstances and are subject to change, so consumers should verify terms directly.
Additional Considerations
While HELOCs offer flexibility in borrowing—allowing you to access only what you need—the line of credit can be reduced or even canceled by the lender at any time, especially if your financial situation changes or if your home’s value decreases.
The HEI scenarios assume a 10-year term. It’s important to note that the annualized cost (which is similar to the APR of a HELOC or home equity loan) can increase significantly with shorter terms, particularly if the agreement is five years or less. For example, while the effective annualized cost for a 10-year HEI might range from 9.59% to 16.04%, depending on annual home appreciation rates (4% to 8%), the annualized cost could be much higher for shorter terms.
Despite these potentially high costs, a significant benefit of HEIs is that they don’t require monthly payments. This can increase your purchasing power by freeing up more cash flow compared to HELOCs and HELs, where regular payments are required. If you need access to equity without the pressure of monthly repayments, a HEI could allow for greater financial flexibility during the term.
Another benefit of home equity investments is they are easier to qualify for than traditional home equity options. Jesse Keyser from Aspire points out: “Most HEIs, unlike traditional home equity access products, either don’t have a DTI requirement at all or, like the Aspire HEI, give homeowners the freedom to pay off debt using their HEI funds in order to meet the applicable DTI threshold. This flexibility is especially important for older homeowners on a fixed income. Many retirees have built up a significant amount of equity in their homes, but don’t meet strict DTI requirements for traditional loan products like HELOCs. HEIs provide a welcome alternative that allows homeowners to access home equity without selling their home.”
Home equity levels have increased dramatically recently, which explains the increase in popularity of home equity financing. However, as Jeffrey Glass, CEO at Hometap explains not everyone qualifies for traditional options.
“So many American homeowners are sitting on hundreds of thousands of dollars in equity, but have few easy ways to access it without taking on debt or selling their home. Home equity investments provide an innovative solution that allows them to tap into that equity to reach goals like making renovations, paying off debt, or even handling emergency expenses while staying in the home they love and preserving cash flow.” – Jeffrey Glass, CEO at Hometap
However, if you’re considering a HEI, be sure to account for the high annualized cost if you settle the agreement early. In such cases, other home equity products may offer a better deal if you can manage the monthly payments.
“One of the main benefits of the HEI is that it allows homeowners to tap into home equity without increasing their monthly debt burden or sell their home and move. This allows homeowners to pay down/off existing high interest debt, which could bring up their monthly net cash flow resulting in potential immediate improvement in quality of life, payment for an upcoming life event, or savings for retirement.” – Jesse Keyser, Vice President at Aspire
Here is an example of the overall and annualized cost of a home equity investment with Unlock using a house with a starting value of $600,000 and an investment amount of $60,000 (10% of home value) in different scenarios. Notice that Unlock and Hometap will cap the annualized cost of the product at 19.90% and 20%, respectively. Aspire HEI goes even further by capping at 12% for the first 3 years, and then between 16% and 18% in year 4.
| Term Length | Ending Home Value* | Calculated Unlock Share** | Actual Unlock Share*** | Annualized Cost*** |
|---|---|---|---|---|
| 1 year | $618,000 | $123,600 | $71,940 | 19.90% |
| 2 years | $637,000 | $127,400 | $86,256 | 19.90% |
| 3 years | $656,000 | $131,200 | $103,421 | 19.90% |
| 4 years | $675,000 | $135,000 | $124,000 | 19.90% |
| 5 years | $696,000 | $139,200 | $139,200 | 18.33% |
| 6 years | $716,000 | $143,200 | $143,200 | 15.60% |
| 7 years | $738,000 | $147,600 | $147,600 | 13.72% |
| 8 years | $760,000 | $152,000 | $152,000 | 12.32% |
| 9 years | $783,000 | $156,600 | $156,600 | 11.25% |
| 10 years | $806,000 | $161,200 | $161,200 | 10.39% |
* Rounded to the nearest $1,000.
** Ending Home Value X 20% Unlock Percentage.
*** Capped by the 19.9% Annualized Cost Limit; and where the limit applies, calculated by applying a 19.9% annual return to the $60,000 Investment Payment for the specified term length.
** Ending Home Value X 20% Unlock Percentage.
*** Capped by the 19.9% Annualized Cost Limit; and where the limit applies, calculated by applying a 19.9% annual return to the $60,000 Investment Payment for the specified term length.
Best ways to use your home equity money
Now that we’ve established the costs of the different home equity options, let’s explore how you might use that money and what kind of returns you can expect. Whether you’re purchasing additional real estate, starting a small business, paying off high-interest debt, or making other major financial moves, each use of funds comes with its own set of risks and potential rewards.
The table below outlines several common ways to use home equity and the expected returns:
| Investment Option | ROI Range Estimate | Explanation / Caveats |
|---|---|---|
| Paying Off High-Interest Debt | ~15% to 25% (Equivalent to interest rate avoided) | Paying off high-interest debt, such as credit cards, provides a guaranteed return by eliminating interest costs. This return is equivalent to the interest rate on the debt paid off. |
| S&P 500 (Stock Market) | ~10% (CAGR over last 20 years) | Represents historical annualized return including dividends. Returns fluctuate based on market conditions, and past performance doesn’t guarantee future results. |
| Real Estate | ~10% (average over last 20 years) | Combines home price appreciation and rental income. Returns can vary greatly depending on location and market trends. Requires significant upfront capital and long-term holding for appreciation. |
| Starting a Small Business | 15% to 30% (IRR for successful businesses) | While the typical IRR of successful small businesses can be high, around 70% of small businesses fail within 10 years. High risks and potential rewards depend heavily on the industry, market conditions, and entrepreneurial skill. |
Reinvesting your home equity can unlock significant financial opportunities. While investing in the stock market using home equity is uncommon due to volatility, the S&P 500’s average return of 10% over the past 20 years makes it a useful benchmark when considering options.
Real estate, with similar average returns, remains a more popular choice, offering both appreciation and rental income. If you’re entrepreneurial, home equity can fund a small business with potential returns as high as 30%—though the risk is high, with 70% of small businesses failing within 10 years.
Using home equity to pay off high-interest debt guarantees a return equivalent to the interest saved—often between 15% and 25%. However, converting unsecured debt to a loan secured by your home puts your property at risk if you can’t make payments, so it’s essential to manage this carefully. Having said that, there are no immediate payments required with a home equity investment beyond the fees required to arrange and fund the agreement or investment. The risk only arises if you’re unable to cover the cost of the investment when the term ends or if you sell the property. In the meantime, using the funds from an HEI to pay off high-interest debt can improve your cash flow, making it easier to manage other financial obligations like your mortgage.
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- Qualify for a HELOC with Bad Credit — Improve your approval odds and find flexible lenders.
- HELOC Closing Costs and Fees Explained — See the real costs behind opening a home equity line of credit.
- HELOC Scams and How to Avoid Them — Protect your home equity and personal information from fraud.
- Using a HELOC to Buy an Investment Property — Discover how homeowners fund real estate investments.
Key takeaways
- Home equity options include HELOCs, HELs, and HEIs, each with different costs, risks, and benefits.
- HELOCs offer flexible borrowing but come with variable interest rates, while HELs provide lump sums with fixed interest rates.
- HEIs offer no monthly payments, but repayment can be costly if your home appreciates significantly.
- Costs for each option vary depending on credit score, home equity, and loan terms, so it’s essential to shop around.
- Using home equity to invest in the stock market, real estate, or small businesses can offer high returns, but paying off high-interest debt provides a guaranteed financial benefit.
Andrew is the Content Director for SuperMoney, a Certified Financial Planner®, and a Certified Personal Finance Counselor. He loves to geek out on financial data and translate it into actionable insights everyone can understand. His work is often cited by major publications and institutions, such as Forbes, U.S. News, Fox Business, SFGate, Realtor, Deloitte, and Business Insider.
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