A home equity agreement is a financial arrangement between a homeowner and an investment company that allows the homeowner to access some of the equity in their home. In exchange for a lump sum of cash, the homeowner grants the investor a lien on the home, which gives the investor the right to a portion of the proceeds from the sale of the home. Home equity agreements are an alternative to traditional borrowing methods, such as home equity loans or refinancing a mortgage.

Under the terms of a typical home equity agreement, home equity investors provide a lump sum of cash to a homeowner in exchange for a percentage of the home’s appreciation, which is its equity value. Homeowners do not make monthly payments or pay interest charges, but instead, at the conclusion of the agreement term, they pay back the investor the equity advance it gave them as well as a percentage of any appreciation in their property value. The term of the agreement is usually 10 years.

Home equity agreements can be a useful way to tap into the equity in your home for cash, especially for those who may not qualify for a traditional loan or have temporary financial difficulties. However, it is important to consider the risks associated with home equity agreements, such as the responsible management of a lump sum payment and potentially high costs caused by any future appreciation in the homes value. Home equity agreements are generally best for people who plan to stay in their homes for an extended period of time.