Key Takeaways
- An HEI contract establishes a long-term equity partnership, and its clauses define how value, control, and exit are shared over time.
- The true cost of an HEI depends on the home’s future value, not just the upfront cash you receive.
- Reviewing the contract through real-life scenarios, like selling, refinancing, or buying out early, helps reduce surprises later.
Home equity investments (HEIs) are often marketed as a simpler alternative to borrowing: you get cash upfront, take on no monthly payments, and avoid interest.
But that simplicity can be misleading. An HEI contract establishes a long-term equity partnership between you and the HEI provider. Unlike a loan, where costs and obligations are mostly fixed, an HEI’s financial impact unfolds over time.
The contract determines who participates in future home value, who controls key decisions during the term, and how the arrangement will ultimately end. Reviewing that agreement carefully before signing helps you understand how this partnership works from start to finish.
In this article (Skip to...)
- How an HEI contract defines the equity partnership
- Who controls decisions during the life of the agreement?
- Ongoing obligations that protect the shared asset
- What happens when things don’t go as planned?
- Transparency and reporting over time
- The bottom line
How an HEI contract defines the equity partnership
At its core, an HEI contract explains how your home’s future value will be shared. Everything else in the agreement supports that central idea.
How the investor’s share is calculated
Instead of charging interest, an HEI investor receives a percentage of your home’s value when the agreement ends. The contract specifies how that percentage is determined and applied.
Most agreements rely on a home valuation at settlement — when the HEI term ends, the home is sold, or the investor is bought out. If the home appreciates, the investor’s payout increases. If the home’s value declines, the investor’s share shrinks.
Why term length matters
HEI terms typically range from 10 to 30 years, and that term defines how long the investor’s claim on your home exists. Longer terms increase exposure to market cycles and appreciation.
They also increase the likelihood that life events, like selling the home or refinancing, will coincide with the agreement. Some contracts allow for extensions or renewals, while others require settlement at the end of the term.
Understanding those options upfront helps clarify how flexible the arrangement really is.
What experts are saying
Michael Gifford, CEO of Splitero
“Many homeowners think they have no alternatives left, when in reality, they just haven’t been shown all the options. We see people use HEIs to pay off medical bills, eliminate credit card debt, start businesses, and even pay off their mortgage entirely.”
Who controls decisions during the life of the agreement?
Although you remain the homeowner, an HEI introduces shared financial interests. Certain clauses exist to protect the investor’s position, and they can affect your options over time.
Buyout provisions and early exits
Many HEI contracts allow homeowners to buy out the investor before the term ends. The contract usually specifies when buyouts are allowed, how the home is valued, and whether any caps or minimum returns apply.
Some formulas make early buyouts expensive if the home has appreciated quickly. Others are more neutral but still involve appraisal costs and administrative fees.
Sale and transfer rules
Selling the home almost always triggers the settlement of the HEI. From the investor’s perspective, the sale is the cleanest way to realize their share of the property’s value.
Contracts typically require advance notice of a sale and may outline how proceeds are distributed at closing. Some agreements also restrict transfers of ownership, like adding a co-owner or transferring the home into a trust, without the investor’s consent.
Ongoing obligations that protect the shared asset
Just because HEIs don’t require monthly payments doesn’t mean the homeowner has no responsibilities. HEI contracts usually impose ongoing obligations on homeowners to preserve the property’s value.
Fees and costs over time
Upfront fees, appraisal costs, and closing expenses are common. Some contracts also include servicing or administrative fees during the term, though they may not be billed monthly like loan payments. Because these costs aren’t tied to interest, they’re easy to overlook at signing.
Maintenance, insurance, and taxes
Most HEI contracts require homeowners to maintain the property, keep adequate insurance coverage, and stay current on property taxes. These clauses protect the investor’s stake by reducing the risk of value erosion or legal issues.
While these responsibilities usually align with standard homeownership duties, the contract may give the investor remedies if obligations aren’t met. Understanding how strictly these provisions are enforced helps set realistic expectations.
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What happens when things don’t go as planned
One of the most important parts of an HEI contract is what it says about problems, not just ideal outcomes.
Default provisions
In an HEI, default typically refers to a violation of contract terms, like failing to maintain homeowners insurance, neglecting the property, or attempting an unauthorized transfer.
The consequences can range from fees to forced settlement in extreme cases. While defaults aren’t common, knowing what triggers them helps you gauge risk and responsibility.
Dispute resolution clauses
Many HEI contracts require arbitration or mediation instead of court litigation. These clauses shape how disputes are resolved and can limit your ability to pursue certain legal remedies. It’s worth understanding these terms before a disagreement ever arises.
Transparency and reporting over time
Because an HEI’s value changes with the home, transparency matters more than it does with a traditional loan. Most contracts outline how often homeowners receive account statements, valuation updates, or other communications.
Clear reporting helps homeowners track how the investor’s share is evolving and anticipate future settlement outcomes. If transparency requirements are vague, that uncertainty can compound over time, especially in fast-changing housing markets.
The bottom line
An HEI contract can be complicated because it governs a shared financial future.
By understanding how value, control, and exit are structured, you can make a more informed decision and reduce the risk of unpleasant surprises years down the road.
An HEI can be a useful tool in the right circumstances. But like any equity partnership, it works best when both sides fully understand the rules from the start.
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