What Happens When Your Home Equity Agreement Ends?

Home equity agreements (HEAs) allow homeowners to access a lump-sum of cash in exchange for a share of the home’s future value. An alternative to home equity loans and HELOCs, HEAs can provide money for home renovations, debt consolidation, or other needs.

These agreements can be risky, though, as they require a balloon payment when your term ends, often after 10 to 30 years. The amount you have to pay at HEA maturity is unpredictable and may be much higher than you expect.

If you can’t afford to pay with savings, cash-out refinance, or another financing option, you may have to sell your house. Knowing how HEA maturity works, along with your payment options, can help you prepare and avoid a forced sale of your home.

In this article (Skip to...)

• What is HEA maturity?
• What happens when an HEA ends?
• Options at HEA maturity
• Key risks
• FAQ

What is HEA maturity?

HEA maturity is when your home equity agreement becomes due. With an HEA, you don’t make monthly payments on the amount you borrow; instead, you pay it all back at once when the HEA matures.

Timelines can vary, but they often span 10 to 30 years, depending on the provider. HEA maturity could also be triggered earlier if you:

• Sell the home
• Refinance your mortgage
• Transfer the home’s title to another owner

At HEA maturity, you must pay the provider their agreed-upon share of the home’s value at the time. There are no monthly payments or interest charges along the way.

What happens when a home equity agreement ends?

When a home equity agreement ends, homeowners must pay back what they borrowed plus a share of their home’s value in one lump-sum payment. If you borrowed $35,000, for example, you might pay back that amount plus 10% of your home’s value at the time of maturity.

That payment is usually a large sum, so you might repay it by:

• Selling your home: You could use the proceeds from the sale to pay back your HEA provider.
• Buying out the HEA: If you have enough savings on hand, you could use those funds to buy out the HEA while retaining ownership of your home.
• Refinancing or using other funds: You could use another financing option, such as cash-out refinance or a home equity loan, to pay back the HEA provider.

Many homeowners feel pressured at this stage, since the required payment could be much higher than the original amount they borrowed.

HEA maturity and forced sales: How do they happen?

If you can’t repay your HEA provider through other means, you may have to sell your home to settle the agreement. A forced sale might occur if:

• You don’t have enough cash, savings, or other liquid funds on hand to buy the HEA
• You’re not able to refinance due to weak credit, insufficient income, or market conditions
• Your home appreciated rapidly, causing your HEA payout amount to exceed what you can afford

Forced home sales are typically a last resort, not a default outcome of HEA maturity. Ideally, you’ll be able to settle the HEA on your own terms, whether by choosing to sell your home, refinancing your mortgage, or paying off your agreement via other means.

Your options at HEA maturity

When an HEA reaches maturity, homeowners generally have three main ways to settle the agreement.

Option 1: Sell the home

One option is to sell the home and repay your HEA provider from the proceeds. The more your home has appreciated, the more you’ll have to pay back your provider. This route could make sense if paying off the amount with cash or another financing option isn’t feasible. Ideally, you’ll also have some funds left over after paying off your HEA.

Option 2: Buy out the agreement

You can buy out the home equity agreement with savings, money from an inheritance, or other assets. You’ll retain ownership of your home, but the buyout amount may be higher than you expected if your home has appreciated significantly.

Option 3: Refinance or take out a loan

You could use another financing option to pay back your HEA, such as a cash-out refinance or home equity loan. However, qualifying could be challenging if you have credit issues or an unstable income. Market conditions can also impact what interest rates are available and how strict lenders are with their underwriting requirements.

Planning ahead to avoid forced sales

Early planning is crucial if you decide to enter a home equity agreement. Some steps you can take include:

• Monitoring the growth of your home value over time so you can estimate your potential payout amount
• Checking in on your refinancing eligibility before HEA maturity and taking steps to strengthen your credit profile if needed
• Reviewing HEA terms well before the end date so you understand maturity triggers, repayment obligations, and any other fees
• Working with a financial or housing advisor for help navigating your options

Key risks homeowners often overlook

Even if you’re carefully planning for HEA maturity, HEAs carry some key risks that are easy to overlook:

• Long-term cost of shared appreciation: The amount you have to repay grows as your home value increases. You may face a much higher bill than you expect, especially if your HEA has a long term.
• Market risk at maturity: It’s impossible to predict what interest rates, home values, and lending standards will look like when your HEA matures. Your options could be more limited than you anticipated.
• Less flexibility than traditional home equity products: Home equity loans and HELOCs let you make monthly payments that you can spread out over time, whereas HEAs require a lump-sum payment all at once.
• Emotional and timing pressure if your options are limited: As your HEA deadline approaches, you might feel stressed and forced to make quick decisions.

The bottom line

While forced sales can happen when an HEA matures, they’re not inevitable. By planning proactively and understanding the full lifecycle of an HEA, you may find a way to settle your agreement without relinquishing ownership of your home (or by selling it on your own terms). Monitoring your home value, checking your refinancing options, and working with a financial advisor can all help you prepare.

With their easier credit requirements and no monthly payments, home equity agreements can offer flexibility upfront for homeowners who need to borrow cash. However, they can be costly, and the exit strategy for an HEA matters just as much as the entry. Planning ahead for HEA maturity can help you make informed choices and hopefully avoid a forced sale of your home.

FAQ