HELOC vs. HEI: Key Differences for Utah Homeowners
A side-by-side comparison of home equity lines of credit and home equity investments — how they work, what they cost, and the tradeoffs homeowners should weigh.
Published by House Partner · Updated September 30, 2026
If you have equity in your home and need access to cash, two options you may encounter are a home equity line of credit (HELOC) and a home equity investment (HEI). Both allow homeowners to access the value built up in their property, but they work very differently — and the costs, risks, and obligations are not the same.
This guide compares HELOCs and HEIs across the factors that matter most to homeowners. Neither option is automatically better; the right choice depends on your financial situation, goals, and risk tolerance.
How a HELOC works
A home equity line of credit (HELOC) is a revolving line of credit secured by your home. A lender approves you for a maximum borrowing amount based on your equity, creditworthiness, and income. You can draw on the line as needed during a draw period (typically 5–10 years). During the draw period, some HELOCs require payments of both interest and principal, while others allow interest-only payments. Interest-only payments do not reduce the principal balance, so your equity does not automatically increase through those payments.
After the draw period ends, the HELOC enters a repayment period (typically 10–20 years) during which you can no longer borrow and must repay the outstanding balance with principal and interest. If you were making interest-only payments during the draw period, your monthly payments may increase significantly when principal repayment begins. Most HELOCs use a variable interest rate, which means your payments can also increase if rates rise.
A HELOC is a loan. You take on debt secured by your home, and failure to make payments can result in foreclosure.
How an HEI works
A home equity investment provides a lump sum of cash in exchange for a share of your home's future value or appreciation. There are typically no monthly payments to the HEI company during the contract term. Instead, you owe a single settlement payment when you sell the home, reach the end of the contract (typically 10–30 years), or experience another triggering event.
The settlement amount depends on the contract's formula, which may consider both the starting and future home values, the amount received, and other adjustments. The HEI company typically places a lien on the property. For a detailed explanation, see what is a home equity investment.
Side-by-side comparison
| Factor | HELOC | Home Equity Investment (HEI) |
|---|---|---|
| Monthly payments | Monthly payments required; some plans allow interest-only payments during the draw period | Typically no monthly payments to the HEI provider; existing mortgage and other obligations continue |
| How costs are determined | Interest rate (often variable) applied to the outstanding balance | Share of home's future value or appreciation, often with a multiplier applied to the initial investment |
| Repayment timing | Monthly during draw and repayment periods; full repayment at maturity | Single settlement payment at sale, contract end, or another triggering event |
| Qualification | Typically requires good credit, verifiable income, and sufficient equity | May accept lower credit scores and less income documentation; varies by provider |
| Effect on equity | Balance owed decreases as you repay; equity position improves over time | Share of future value owed at settlement; the cost grows if the home appreciates significantly |
| Risk to the home | Foreclosure if monthly payments are not made | Potential forced sale or foreclosure if settlement cannot be paid or contract terms are violated |
| Interest rate | Variable rate is common; some lenders offer fixed-rate options | No stated interest rate, but the effective cost can be significant depending on appreciation and contract terms |
| Lien on property | Yes — second lien behind the primary mortgage | Yes — typically a junior lien; may limit refinancing options |
This comparison reflects general characteristics. Specific terms vary by lender (for HELOCs) and provider (for HEIs). Always review the actual contract terms before committing to either option.
When a HELOC may be a better fit
A HELOC may make more sense when:
- You qualify for a competitive interest rate based on your credit and income
- You can comfortably manage the monthly payments
- You want the flexibility to borrow, repay, and borrow again during the draw period
- You prefer a product with well-established consumer protections and standardized disclosures
- You want to preserve your full equity position over time (since repayment reduces the balance owed)
When an HEI may be worth considering
An HEI may be worth exploring when:
- You cannot qualify for traditional borrowing due to credit, income, or other factors
- You need cash but cannot take on additional monthly debt payments
- You have a clear plan for how you will settle the HEI obligation when it comes due
- You understand and accept the possibility that the total cost could exceed what a traditional loan would have cost
- You have reviewed the specific contract terms and understand the settlement formula, triggers, and your obligations during the contract
Common misconceptions
Both HELOCs and HEIs are sometimes misunderstood. A few points worth clarifying:
- "HEIs have no cost" — HEIs do not charge interest in the traditional sense, but the settlement amount can represent a substantial cost, especially if the home appreciates significantly
- "HELOCs are always cheaper" — This depends on the interest rate, how long you carry a balance, and how much the home appreciates. In some scenarios, an HEI may cost less; in others, it may cost significantly more
- "HEIs are not risky because there are no monthly payments" — The risk is deferred, not eliminated. A large settlement obligation at the end of the contract can create serious financial pressure, potentially including forced sale of the home
- "HELOC rates are fixed" — Most HELOCs use variable rates. Some lenders offer fixed-rate options, but this varies
Questions to ask yourself
- Can I qualify for a HELOC, and if so, at what rate?
- Can I afford monthly payments, or is cash flow the primary concern?
- How long do I plan to stay in the home?
- What is my realistic plan for settling an HEI obligation if I choose that path?
- Have I compared the total cost of each option under different home-value scenarios?
- Have I consulted with a financial advisor or attorney about which option fits my situation?
Sources and further help
These authoritative resources provide additional information and may be updated as programs or guidance change.
Comparing your equity options?
House Partner helps Utah homeowners understand the equity-based alternatives available to them — including HEIs, selling, and other approaches.
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