HEI vs. HELOC
The Bottom Line
- HEIs have no required monthly payments. It's their biggest advantage versus a HELOC but also the reason they typically cost more than a HELOC.
- HEIs usually cost more. Under normal home-price appreciation scenarios, HEIs can cost significantly more than HELOCs. An HEI only closes the cost gap when home prices remain flat over longer periods of time.
- HEIs are easier to qualify for. Unlike HELOCs, HEI providers accept credit scores as low as 500 and typically have no income requirements.
- A HELOC is reusable. A HELOC lets you draw, repay, and draw again during its draw period. An HEI gives you a single lump sum with no way to access more later, even if your needs change.
When Each One Makes More Sense
A HELOC May Be a Better Fit If
- You can qualify: a credit score of 620 or higher, a debt-to-income ratio under roughly 43%, and verifiable income
- You don't mind taking on a new monthly payment
- You have a short-term need you can pay off within the draw period, typically 10 years, when payments are interest-only and low
- You want to draw funds over time, repay, and draw again as needed, similar to a credit card but at a much lower rate
- You want to know your exact payoff amount in advance for budgeting, rather than a settlement tied to your home's future value
An HEI May Make More Sense If
- You don't qualify for a HELOC due to your credit score or income documentation, not a recent bankruptcy or foreclosure, since most HEI providers restrict those too
- You don't want to take on a new monthly payment
- You expect your home's value to grow slowly, stay flat, or decline, see Which Costs Less below
- You're not comfortable with the payment-shock risk when a HELOC's draw period ends and converts to a higher amortizing payment
- You want certainty about how much cash you can access. A HELOC's lender can freeze or reduce your credit line if your finances or home value decline, even with a perfect payment history
- You've decided the benefits (no monthly payment and easier qualification) are worth the typically higher cost
An active HEI also comes with its own ongoing restrictions, often broader than a HELOC's: provider consent for a new loan, and disclosure duties for major life or property changes. See What Is an HEA? for the details.
Neither list is exhaustive. Run your own numbers with your actual home value, holding period, and appreciation expectations before deciding.
See What You Might Qualify For
An HEI has no income requirement and no monthly payment. Enter your home details to see what you'd actually owe.
Quick Comparison
Both let you turn home equity into cash. Past that, they work very differently:
| HEI | HELOC | |
|---|---|---|
| Monthly payment | ✓ None | ✗ Interest-only, then principal & interest |
| Minimum credit score | ✓ As low as 500 with some providers | ✗ Typically 620+ |
| Income verification | ✓ Typically not required | ✗ Required |
| Reusable credit line | ✗ One-time lump sum only | ✓ Yes, draw and repay during the draw period |
Even though HEI providers don't require income checks, they typically will disqualify a potential borrower for recent bankruptcy or foreclosure, just like a HELOC lender would. See When Each Makes Sense above.
How a HELOC Works
A home equity line of credit (HELOC) is a revolving credit line secured by your home, typically sitting behind your primary mortgage as a second lien. Instead of receiving a lump sum, you draw what you need, when you need it, up to your approved limit.
Draw Period, Then Repayment Period
Most HELOCs have two phases. The first period is called the draw period, which commonly lasts 10 years. During the draw period, you pay interest only on the balance you've actually drawn and can repay and redraw as needed. The second phase is called the repayment period, which commonly lasts 20 years. During the repayment period, you cannot draw any more, and what you owe transforms into a higher fixed monthly payment (principal and interest) until the loan is fully paid off.
A Variable Rate
A HELOC's rate is typically variable, tied to the prime rate plus a margin, so your payment can rise or fall with broader interest rate changes. Current national average rates run around 7.3%. The transition from a low monthly payment (interest only) to a higher monthly payment (principal and interest) at the end of the draw period can result in a large payment shock to borrowers and is something worth planning for.
Worked example: $50,000 drawn at 7.31%
- Draw period payment (interest-only)~$305/mo
- Repayment period payment (20-yr amortizing)~$397/mo
Qualifying and Ongoing Risk
A HELOC lender evaluates you much like a mortgage lender would: your credit score, income, and debt-to-income ratio all factor into approval and your credit limit. That evaluation can work against you later, too. If your financial situation deteriorates during your HELOC's draw period, a lender can freeze or reduce your available credit line, even if you've made every payment on time.
How an HEI Works
A home equity investment (HEI) gives you a lump sum today in exchange for a share of your home's future value. There's no monthly payment, no stated interest rate, and no income or DTI requirement with most providers. See What Is an HEA? for the full mechanics.
What you eventually owe is a fixed percentage of your home's value at the time you settle, calculated using your requested amount, a provider-assigned multiple, and a cap on how much your share can grow per year. If your home's value doesn't grow, what you owe generally doesn't grow much either, depending on the provider's formula.
Unlike a HELOC, an HEI is always a single lump sum with no way to draw more later. HEIs have a fixed term, typically 10 to 30 years depending on the provider, and settle by selling, refinancing, or buying out the agreement, whichever comes first. See Choosing a Term Length for how that works.
Why a HELOC Usually Costs Less
The table below shows the total cost to close out each option at a given exit year, across three scenarios on the same $500K home with $50,000 requested or borrowed.
Scenarios
- HELOC at 7.31%, 10-year interest-only draw then 20-year amortizing repayment
- Splitero's HEI, 3.5% annual home price growth
- Splitero's HEI, flat market
Total Dollars Owed
| Exit Year | HELOC | HEI, 3.5% Growth | HEI, Flat Market |
|---|---|---|---|
| Year 5 | $68,275 | $118,769 | $100,000 |
| Year 10 | $86,550 | $141,060 | $100,000 |
| Year 20 | $117,918 | $198,979 | $100,000 |
| Year 30 | $131,832 | $280,679 | $100,000 |
Observations
- When home values grow at a typical rate (the HEI, 3.5% Growth column), the HELOC is cheaper than the HEI at every year shown, by a wide and growing margin.
- Even when home values are flat, the HELOC stays cheaper through year 10.
- Somewhere between year 10 and year 20, the HELOC's total cost overtakes the HEI's flat-market figure. That's because the HELOC keeps accruing interest the longer you hold it, even after its balance has started to pay down during the repayment period.
Why do HEIs typically cost more? HEIs don't have monthly payments and are easier to qualify for due to more lenient credit requirements. Those benefits are not free. The HEI provider is taking on more risk than a HELOC lender because they don't receive a single dollar of repayment for up to 30 years and don't check your income, relying solely on the value in your home for repayment. HEI providers price that risk into what you eventually owe. This isn't evidence the product is a bad deal. It's the cost of the benefits you're getting: no monthly payments and easier qualification standards.
Detailed Comparison
| Feature | HELOC | HEI |
|---|---|---|
| Monthly payment required | Yes, interest-only during the draw period, then principal & interest | No |
| Credit score (typical) | 620 or higher | As low as 500 with some providers |
| Income / DTI requirement | Yes, DTI typically under ~43% | None with most providers |
| Bankruptcy or foreclosure history | Generally disqualifying | Generally disqualifying |
| How funds are accessed | Revolving credit line, no draws after the draw period | One-time lump sum only |
| Credit line stability | Lender can freeze or reduce it if your finances or home value decline | Lump sum payment; can't be revoked |
| Cost structure | Variable interest rate, accrues only on the drawn balance | Fixed share of your home's value at settlement |
| Repayment | Gradual monthly payments, amortizing | Lump sum at sale, refinance, or end of term |
| Term | Draw period plus repayment period (e.g. 10 + 20 years) | Fixed 10–30 years depending on provider, or mortgage-linked |
| Combined LTV ceiling | Typically 80–90%, varies by lender | Typically 75–90%, varies by provider |
| Recourse | Usually recourse debt | Typically non-recourse |
HELOC terms vary significantly by lender. Get a specific quote before assuming a figure above applies to you.
Frequently Asked Questions
Is a HELOC always cheaper than an HEI?
No, but it's cheaper in most realistic scenarios. In our worked example, a HELOC costs less than an HEI at every exit year we tested under typical home-price appreciation (3.5%), often by a wide margin. The exception is a genuinely flat, long-held market, where the HEI's cost barely grows and eventually overtakes the HELOC's. See Which Costs Less above.
Can I get an HEI if I was denied a HELOC?
It depends on why. If you were denied for income documentation, DTI, or credit score reasons, an HEI may be worth exploring, since most providers skip those checks entirely. If you were denied because of a recent bankruptcy or foreclosure, an HEI usually isn't a workaround. Most HEI providers we track apply the same restriction a HELOC lender would.
Can I redraw funds from an HEI the way I can with a HELOC?
No. An HEI is always a single lump sum. Once it's funded, there's no credit line to draw from again, even if your needs change or your home's value rises. A HELOC's draw period lets you draw, repay, and redraw as needed up to your limit.
Can my HELOC be frozen or reduced after I open it?
Yes. If your credit, income, or home value declines during the draw period, a HELOC lender can freeze new draws or reduce your credit limit, even if you've made every payment on time. This happened broadly during the 2008 to 2009 downturn. An HEI doesn't carry this risk. Once it's funded, the amount is locked in and can't be revoked.
Does a HELOC have a fixed rate?
Usually not. Most HELOCs carry a variable rate tied to the prime rate plus a margin, so your payment can rise or fall with broader interest rate changes. Some lenders offer a fixed-rate conversion option on some or all of your balance, but that's a lender-specific feature, not the default structure.
How much could my HELOC payment increase after the draw period ends?
On a $50,000 balance at a 7.31% rate, the interest-only payment during the draw period is about $305 a month. Once the repayment period begins, that same balance amortizes into a payment of about $397 a month, roughly a 30% increase. The jump is larger the more you've drawn and the shorter your remaining repayment period. See A Variable Rate above for the full example.
Does an HEI hurt my ability to get other financing later?
Not through your debt-to-income ratio, since there's no monthly payment to count against it. It can still affect your options in other ways: the HEI is a lien on your home, so it reduces the equity available to a future lender, and most providers require their consent before you take out certain new loans against the property. See What Is an HEA? for the details.
What happens if I can't make my HELOC payments?
The same ultimate risk as any home-secured loan: falling behind can lead to foreclosure. An HEI removes that specific risk since there's no monthly payment, but it isn't risk-free either. Falling behind on your primary mortgage, property taxes, or insurance, or failing to settle the lump sum when your term ends, can still put you at risk of losing the home.