Quick answer
A home equity loan usually costs less over time if you can afford the fixed monthly payment and your home appreciates at a normal pace. An HEI costs nothing month to month and can cost less if home values stay flat, but it can cost much more if your home appreciates quickly. In our 10-year example, the loan costs less once appreciation tops about 1.8% a year.
Side by side
| Home equity loan | HEI | |
|---|---|---|
| Money received | Lump sum | Lump sum |
| Monthly payment | Fixed principal + interest | None |
| Cost | Fixed interest rate | Share of your home's future value, plus fees |
| Term | Commonly 5–30 years | Often 10–30 years |
| Qualifying | Credit, income, debt-to-income, equity | Mainly equity and property; credit is often more flexible |
| Balance at the end | $0 (fully paid over the term) | Full settlement due |
| Your appreciation | 100% yours | Shared |
The 10-year math on $50,000
Same home ($500,000), same need ($50,000), same 10 years.
Home equity loan (example 8.5% fixed, 10-year term): about $620 a month. Total paid over 10 years: about $74,400 ($50,000 principal + about $24,400 interest). At the end you owe nothing.
HEI (example: 25% of appreciation): no monthly payment. At the end of 10 years you repay $50,000 plus 25% of the gain:
| Annual appreciation | HEI settlement | Home equity loan total | Lower cost |
|---|---|---|---|
| 0% (flat) | $50,000 | $74,400 | HEI by about $24,000 |
| 3% | $93,000 | $74,400 | Loan by about $19,000 |
| 5% | $129,000 | $74,400 | Loan by about $54,000 |
| 7% | $171,000 | $74,400 | Loan by about $96,000 |
Break-even is about 1.8% annual appreciation in this example. HEI fees (about 3–5%) lower that further. Two caveats cut the other way: the loan's payments are spread over 10 years while the HEI is paid at the end, and the $620 monthly payment has to fit your budget every month. For many households, that payment is the whole question.
Illustration only. Rates and terms are examples, not offers.
Who a home equity loan fits
- You can comfortably afford a fixed payment.
- You want a predictable, fixed cost and a set payoff date.
- You expect your home to appreciate and want to keep all of it.
- You'll stay in the home long term.
Who an HEI fits
- A new monthly payment would strain your budget.
- Your credit or income documentation makes a loan hard to get.
- You plan to sell within the term.
- You expect modest appreciation.
A middle ground: a HELOC
If you need money over time rather than all at once, a HELOC lets you draw as needed and pay interest only on what you use. Many HELOCs offer interest-only payments during the draw period, which keeps the monthly cost lower than a home equity loan. See HELOC vs. home equity loan and the full HEI vs. HELOC guide.
Compare an HEI and a HELOC for your home
Tell us how much you need. We'll show the HELOC payment and total cost next to the HEI settlement under flat, moderate, and strong appreciation.
FAQ
Is an HEI better than a home equity loan?
It depends on your budget and expected appreciation. A home equity loan usually costs less if you can afford the payment and your home appreciates normally. An HEI has no monthly payment and can cost less if values stay flat.
Which is cheaper, an HEI or a home equity loan?
In a 10-year example on $50,000 from a $500,000 home, a home equity loan at an example 8.5% costs about $74,400 in total, while an HEI costs about $50,000 if values are flat, $93,000 at 3% appreciation, and $171,000 at 7%.
Is it easier to qualify for an HEI or a home equity loan?
An HEI is usually easier because there's no monthly payment to qualify for, and credit requirements are often more flexible. A home equity loan requires income and debt-to-income that support the payment.
Can I have an HEI and a home equity loan at the same time?
Sometimes, if you have enough equity and both the lender and investor allow it. Each adds a lien, and combined limits usually apply.
Talk to a licensed HELOC lender
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Keep reading
What Is an HEI? The Complete Guide
How HEIs work, what they cost, and the 10-year math vs. a HELOC.
Our HEI Program
Cash from your equity with no monthly payments.
HELOC vs. Home Equity Loan
Line of credit or fixed lump sum?