HEI vs. HELOC Over 10 Years: Which Costs More?

When choosing between a home equity investment (HEI) and a HELOC, consider the long-term costs. A HELOC accrues interest and requires repayment, while an HEI is settled based on your home’s future value. Comparing both over a 10-year period clarifies the trade-offs between ongoing interest payments and a future settlement. Below, we outline how the costs for each option are structured.

In this article (Skip to...)

• HELOC interest vs HEI repayment
• Why HEIs cost more
• HEI vs. HELOC over 10 years: Example cost table
• Choosing HELOC or HEI
• When HEIs are cheaper
• When HELOCs cost less
• Cost of lost equity
• FAQs

HELOC interest vs HEI repayment

A HELOC and a home equity investment calculate costs using entirely different structures. A HELOC accrues interest on the borrowed balance, while an HEI is settled based on your home’s value at repayment, not a fixed loan balance. One cost grows with interest, the other depends on home appreciation and contract terms.

• HELOC interest: You repay the borrowed amount plus accrued interest, with total cost determined by your interest rate, balance, and loan duration.
• HEI repayment: You settle based on the original cash received and a contractual share of your home’s value at settlement, which can rise significantly if your home appreciates over 10 years.

Why HEIs often cost more over 10 years (even when they sound cheaper today)

A home equity investment may appear less expensive initially since it does not require monthly payments or traditional interest. However, its cost is based on your home’s future value, not time or interest rates. You typically repay the original investment plus a contractually defined share of your home’s value at settlement, which may include appreciation and, in some cases, a multiplier on the provider’s investment.

Since the provider’s return depends on home value growth and the agreement is often junior to your primary mortgage, the potential payoff can increase over time. Over 10 years, strong home appreciation may result in a settlement amount higher than what you would have paid in HELOC interest, even if the HEI initially seemed more affordable because there are no monthly payments.

HEI vs. HELOC over 10 years: Example cost table

How to choose between a HELOC and an HEI

A 10-year horizon offers a clearer comparison because HELOC interest accumulates gradually, while HEI costs are often deferred until settlement, such as a sale, refinance, or end of term. A short-term view may make an HEI seem less expensive, but a longer timeframe shows how appreciation and contract terms impact the total owed.

• Choose a HELOC if you can manage monthly payments, expect your home to appreciate, and want to retain all future equity while paying predictable interest costs.
• Choose an HEI if you need to avoid monthly payments, cannot qualify for a competitive HELOC, or expect limited home appreciation over the next decade.

Over a 10-year horizon, the main decision is whether you prefer to pay ongoing interest to keep all future equity or accept a variable settlement that may increase if your home’s value rises.

When can an HEI be cheaper than a HELOC over 10 years?

An HEI may cost less than a HELOC when home appreciation is limited or monthly payment risk is a concern. Since HEI repayment is based on future home value, low or stagnant price growth can result in a smaller settlement, while a HELOC accrues interest regardless of market conditions.

• Low or flat home appreciation over the 10-year period.
• Inability to qualify for a competitive HELOC rate.
• Situations where taking on a monthly payment would increase financial risk.
• Contract structures with caps, adjustments, or limited upside sharing.

When is a HELOC usually the better deal over 10 years?

A HELOC is often the better choice than an HEI over 10 years when home values rise steadily, and you can manage regular payments. Unlike an HEI, HELOC costs do not increase with home appreciation, since you repay a fixed balance plus interest, making total costs more predictable in appreciating markets.

• Strong home price growth that increases HEI settlement value.
• Ability to pay down principal and reduce total interest over time.
• Preference for predictable repayment tied to a loan balance.
• Plans to refinance or access additional credit in the future.

The real cost of an HEI is the equity you don’t get to keep

The main cost of a home equity investment is often the equity you give up as your home appreciates, not the cash you repay. Since home equity is a key source of long-term wealth, sharing future appreciation can reduce what you ultimately keep when you sell, refinance, or settle the agreement.

Choosing an HEI is not just a financing decision but a trade-off between immediate liquidity and future equity growth, which becomes more significant over 10 years in appreciating markets. Generally, a HELOC is less expensive if you expect strong home price growth and can manage payments, while an HEI may be more suitable if appreciation is modest, loan qualification is difficult, or avoiding monthly payments is a priority.

Ready to compare HELOCs and HEIs?

Before deciding, evaluate how each option affects your total cost over time, not just your current monthly payment. Consider ongoing interest payments versus potential loss of future home equity. By reviewing personalized offers and projecting your 10-year costs, you can make a confident, informed choice aligned with your financial goals and home price expectations.

HEI vs HELOC cost comparison FAQ