How an HEA Works: Home Equity Agreements Made Easy

Key takeaways

• A Home Equity Agreement (HEA) enables you to pull cash out of your home without selling your property or replacing your mortgage. 
• With an HEA, you receive a lump-sum payment in exchange for a share of your home’s value at the end of the agreement. 
• Use the funds for whatever you need, and continue to live in your home as you always have. 
• You can settle your agreement at any point during the term (typically ranging from 10 to 30 years) by selling your home or buying out Unlock’s share. 
• An HEA has a different payment structure than a home equity loan or home equity line of credit: there are no monthly payments – instead, there’s one payment at the end.

When it comes to accessing your home equity, you have a variety options: personal loans, reverse mortgages, home equity loans, home equity lines of agreement or simply selling your property. We’d like to introduce you to a home equity product you may not be familiar with – the home equity agreement or (HEA)

An HEA lets you access cash now without the monthly payments that come with most traditional loan products — and without selling the home you love. 

Qualifying for an HEA is based on a different set of criteria that’s primarily centered on available equity and home value, not income or credit score thresholds.

What is a home equity agreement?

A home equity agreement (HEA) is a financial option that lets you access your equity without taking on monthly payments. 

You receive cash after signing the agreement. In exchange, Unlock receives a percentage share of your home’s value at the end of the agreement. The term varies based on provider, but is 10 years with an Unlock HEA. In the meantime, you continue to live in your home as normal. 

If you’d prefer to keep your home, you can buy out Unlock’s share at any time before the term ends. 

How does “home equity investment” differ from “home equity agreement”? 

If you’ve been searching for ways to tap your home equity, you may have come across both terms: home equity investment (HEI) and home equity agreement (HEA). And you’ve probably questioned whether there are differences between the two.  

Here’s the quick answer: There are none. Providers of HEIs and HEAs may use different terms or equity sharing models, but the products themselves are generally the same. At Unlock, we use “home equity agreement” because that’s exactly what it is: an agreement between you and us. And “agreement” is the term that appears in our contract.

Once you know the terminology, the next question is usually: is an HEA like a HELOC or something?

HEA vs. HEL vs. HELOC 

HELs and HELOCs are loans that use your home equity as collateral. With a HEL, you get a lump sum. With a HELOC , you get access to a rolling line of credit. In either case, you pay the loan back with interest. gives you access to a rolling line of credit. In either case, you must pay the loan back with interest.

With a HEL, you start making monthly payments toward the principal right away. HELOCs have an initial draw period — typically up to 15 years — during which you make interest-only payments. After that, you enter a repayment period when you pay back the remaining principal plus interest. 

An HEA works differently. You receive cash upfront in exchange for a percentage of your home’s value when the agreement ends. There are no ongoing monthly payments of principal or interest during the term. And qualification is centered on your home’s equity and value.

How does a home equity agreement work?

Here’s what you need to know about how home equity agreements work:

1. Get an estimate
   he first step is to see how much equity you could qualify to access — typically anywhere from $15,000 to $500,000, depending on your home’s value, how much equity you’ve built, your credit score, and whether your home is a primary residence or investment property. Your equity is the difference between the property’s current market value and how much you owe on it.
   
   You can get an initial estimate on Unlock’s website without impacting your credit score. Keep in mind it’s an estimate and final terms are confirmed further in the process. 
2. Understand the terms
   If you decide to move forward, you’ll review the terms of your agreement. For example: you receive a percentage of your homes value today as cash. At the end of the term, Unlock receives its share of your home’s value at that time — based on the Unlock Percentage specified in your agreement, not a multiple of how much cash you received upfront. 
3. Get your cash
   You’ll typically receive your funds after signing. You’re free to use them however you choose. Many homeowners use their home equity to pay down expensive debt or fund needed home improvement projects.
4. Live your life
   During the HEA term, you continue to live in your home as normal, retaining full control over the property and all the benefits of ownership — including any tax deductions for which you’re eligible. That also means you remain fully responsible for all housing expenses, such as homeowners insurance and property tax.
5. End the agreement on your terms
   Your HEA has a fixed term – up to 10 years. But one of the main advantages of an HEA is that you can decide when it ends. You can settle your HEA at any time by buying out Unlock’s share or selling the property. Unlock also allows you to buy back portions of your equity over time through a Partial Buyout. At the end of the term, you settle with Unlock according to your agreement. If you’re not ready to sell, you can use cash on hand or another form of financing to complete an Owner Buyout. 

Home equity agreement example

Let’s say your starting home value – based on an independent third-party appraisal in your state – was $600,000, and you want to access $60,000 of that equity. Note that the amount you actually receive would generally be about $57,000, after transaction and closing fees typically around 5% of the amount accessed.

Using a 3% annual appreciation rate — historically considered moderate — your home would be valued at approximately $806,000 at the end of a 10-year term. 

To determine the share the provider would be owed at that 10-year mark, you would multiply the ending home value by the percentage specified in your original agreement. If that percentage is 18%, the Settlement Payment would be approximately $145,000. And, if you sold your home in this scenario, you would retain the remaining $661,000, less any remaining mortgage balance and seller fees.

Benefits of a home equity agreement

If you’re considering an HEA, review these benefits.

• No additional monthly payments. You’re not adding another bill to your monthly budget. Unlike a HEL or HELOC, there are no ongoing payments of principal or interest during the term. 
• Flexible credit requirements. Since an HEA is based primarily on the value of your home, homeowners with credit scores of 500 or above may qualify. 
• No income requirement. Unlock has no income requirement, making an HEA an option worth exploring for retirees, self-employed individuals, and others without traditional full-time income. 
• Cash for whatever you need. Turn your equity into cash and use it however you choose. 
  

Is a home equity agreement right for you?

As with any financial product, the right fit depends on your goals and situation. Take time to understand how an HEA works, review the terms carefully, and weigh whether it fits with your plans. 

Want to learn more? See if an HEA could work for you.