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A past client called me stressed about her financial situation and she'd been researching something called a home equity agreement. The marketing looked amazing — access $75,000 in cash with no monthly payments, no interest charges, and apparently it's "not even a loan." Sounds perfect, right?
Well, not exactly. When we sat down and actually worked through the numbers, what looked like a financial lifeline turned into something way more expensive than she realized. That conversation is why I'm writing this guide today.
Think of it like this: American homeowners are sitting on nearly $35 trillion in home equity right now, according to the Federal Reserve. That's wealth tied up in your property that you can't easily spend. Companies offering home equity agreements (also called home equity investments or shared equity agreements) want to help you unlock that cash by essentially buying a stake in your home's future value. You get money today, they get a piece of your appreciation tomorrow.
Here's the human side of this - these agreements can sound incredibly appealing when you're facing high-interest debt, major home repairs, or medical bills. The textbook answer is that they're complex financial contracts requiring careful analysis. But really, what this means for you is understanding exactly what you're trading away and whether cheaper alternatives exist before you sign anything.
I was just in class learning about how financial products can be structured to look more attractive than they actually are when you dig into the details. That's definitely the case here. Let me simplify this for you with everything you need to know.
A home equity agreement is a contract where an investor gives you a lump sum of cash today in exchange for a percentage of your home's future value. Unlike a home equity loan or HELOC where you borrow against your equity and repay with interest over time, you're actually selling a portion of your property's appreciation to an outside company.
The way these contracts work in practice involves several moving parts that determine how much you'll eventually owe. Most agreements run for 10 to 30 years, though you can usually repay earlier if you sell your home or refinance. The investor places a lien on your property - similar to how your mortgage lender does - which secures their stake in your home.
What makes these agreements different from traditional loans is that your repayment amount varies based on your home's future value. If your home appreciates significantly, you'll owe more. If it depreciates, you'll owe less. But here's what companies don't always emphasize: the contracts are structured with multipliers and rate caps that typically ensure you pay substantially more than you received under most scenarios.
Let me walk you through a real example using numbers from the Consumer Financial Protection Bureau's analysis of these products.
Say your home is worth $500,000 and you get a $50,000 payment (10% of your home's value). In exchange, the company takes a 20% stake in your home's future value - notice that's a 2x multiplier right there. Most agreements also include a rate cap around 18% to 20% annually, which sounds like "protection" but actually means your repayment amount grows at rates equivalent to high-interest debt.
Scenario 1: Your home appreciates 6% per year
After 3 years, you'd owe: $86,400 After 10 years, you'd owe: $179,085
That $50,000 you received is costing you an effective annual rate of 20% for the first five years, then dropping to 14% annually over the full 10-year term.
Scenario 2: Housing market crashes
Let's say your home value drops 30% immediately to $350,000, then slowly recovers at 3% per year.
After 3 years, you'd owe: $76,491
After 10 years, you'd owe: $81,149
Even in this disaster scenario, you're still paying an effective rate of 15% in year three and 6.5% annually over 10 years.
Compare that to a traditional $50,000 home equity loan at 9% with a 10-year term. Your monthly payment would be around $633, and you'd pay about $25,960 in total interest. That's expensive, but still potentially $70,000 to $155,000 less than the home equity agreement depending on your home's appreciation.
The home equity agreement market is dominated by four companies that together have originated over 37,000 contracts to date. Understanding who these companies are and how they operate helps you evaluate whether this type of financing makes sense for your situation.
Unison (Founded 2006)
Point (Founded 2015)
Hometap (Founded 2017)
Unlock (Founded 2019)
What nobody tells you upfront is that these companies are backed by Wall Street firms and private equity interested in the high returns these products generate. In 2024, these four companies securitized $1.1 billion in home equity contracts, essentially packaging them as investment products for institutional investors. That's helpful to understand because it shows you who really benefits when home prices appreciate.
Most home equity agreement companies have more flexible requirements than traditional lenders, which is part of their appeal. But "flexible" doesn't necessarily mean "good deal" - it just means they're willing to accept higher-risk borrowers in exchange for potentially higher returns.
Home Value Minimums
Most companies require your home to be worth at least $250,000, though some accept lower values. Properties must typically be owner-occupied single-family homes, though Point does work with investment properties for an additional premium.
Credit Score Requirements
This is where home equity agreements differ most from traditional financing. While conventional home equity loans typically require credit scores of 620 or higher, these companies often work with scores as low as 500. Point, Unlock, and Splitero all advertise acceptance of 500 scores, while Hometap and Unison generally look for 600+.
Loan-to-Value Ratios
You generally need at least 20% equity in your home after the agreement is factored in. Most companies won't let your combined mortgage balance and their investment exceed 80% of your home's value. If you owe $300,000 on a $500,000 home, you have $200,000 in equity - but the company might only offer you $50,000 to $75,000 to maintain that 80% LTV threshold.
Income and Debt-to-Income
Here's where it gets interesting. Many home equity agreement companies advertise "no income requirements" or don't emphasize DTI ratios the way mortgage lenders do. This makes them accessible to retirees, self-employed individuals, or people with irregular income streams who might not qualify for traditional financing.
Property Maintenance Obligations
What the marketing materials don't emphasize enough: you're required to maintain the property to specific standards, pay all property taxes and insurance on time, and keep your primary mortgage current. Failure to do any of these can trigger default provisions and potentially accelerate your repayment timeline.
Not all companies operate in every state. Some states like Massachusetts have taken action against home equity agreement providers, with Attorney General Andrea Campbell suing Hometap for allegedly engaging in predatory practices. Connecticut, Illinois, and Maryland have passed regulations treating these agreements as loans subject to consumer protection rules.
Currently, California, Florida, and Texas represent some of the largest markets for these products, but availability changes as regulations evolve.
Let me be completely honest with you - the cost structure of home equity agreements is designed to be confusing. Companies advertise "no interest" and "no monthly payments" because technically those statements are true. But you're absolutely paying for this money, often at rates that exceed traditional financing.
Origination and Processing Fees
Most companies charge between 3.5% to 4.9% of your payment amount upfront. On a $50,000 agreement, that's $1,750 to $2,450 right off the top. Plus, you'll typically pay for:
So that $50,000 you're accessing? You might only actually receive $46,000 after all the fees are deducted.
This is where the real cost lives. Remember how I mentioned companies typically give you 10% of your home's value but take a 20% stake? That 2x multiplier means they're automatically ahead even before any appreciation occurs. Your home would have to lose more than 50% of its value for the company to lose money on this deal.
Some companies apply multipliers differently. They might offer 10% of your home's current value in exchange for 15% of the future value. Others use discounted starting values - meaning they calculate appreciation from a baseline that's 20% to 25% below your actual home value. This ensures they profit unless your market crashes significantly.
Companies market rate caps as "homeowner protection" or "safety caps," but they're really just limits on how fast your repayment grows. Most caps sit around 18% to 20% compounded monthly, which translates to about 19.5% to 22% annually. That's comparable to high-interest credit cards, not home-secured financing.
What this means in practice: even if your home appreciates modestly or stays flat, you're paying rates equivalent to expensive consumer debt. The rate cap only kicks in when appreciation would make you owe even more.
Let me show you exactly what I mean with actual numbers you can verify.
Scenario: $75,000 home equity agreement vs. $75,000 HELOC
Your home: $500,000 current value
Agreement terms: 10% of value for 20% future stake, 20% annual cap
HELOC terms: 9% interest rate, interest-only for 10 years
Time Period
Home Equity Agreement
HELOC
Upfront costs
$3,675 origination + $2,000 closing = $5,675
$500 to $1,500 closing costs
Year 1 cost
$0 monthly, building to $15,000 implicit
$563/month = $6,756 annual
Year 5 cost
$0 monthly, approximately $131,625 owed
$563/month = $33,780 total interest paid
Year 10 cost
Must repay $268,628 (assuming 6% appreciation)
$563/month = $67,560 total interest, still owe $75,000 principal
Total paid over 10 years with 6% appreciation:
The home equity agreement costs you an additional $126,068 compared to the HELOC in this scenario. That's nearly double the amount you originally accessed.
I don't want to give the impression that home equity agreements are always a bad choice. For specific situations and certain homeowners, they can provide access to capital when traditional options aren't available. Let me be fair about the genuine benefits.
This is the most significant advantage for homeowners with tight monthly cash flow. If you're retired living on fixed income, self-employed with irregular earnings, or recovering from financial setbacks, avoiding a $600+ monthly payment can make a real difference in your day-to-day finances. You maintain your existing budget without adding another bill to juggle.
For someone facing medical debt or urgent home repairs who literally cannot afford additional monthly obligations, the deferred payment structure provides breathing room. Just breathe and remember that "breathing room" comes with a substantial long-term cost.
When I work with clients who have credit scores in the 500s or low 600s, traditional lenders often shut the door immediately. Home equity agreements open a path to funding that genuinely doesn't exist otherwise for these homeowners. The companies care more about your home's value and equity position than your credit history or income documentation.
This can be particularly helpful for:
Unlike some home equity products that limit how you can use the funds, home equity agreement money comes with no strings attached. You can use it for:
That freedom has value, especially if you need funds for purposes that traditional lenders might not approve.
If the housing market crashes significantly in your area, you could end up owing less than you would with a fixed-rate loan. In the extreme scenario I showed earlier where a home dropped 30% in value, the homeowner owed $81,149 after 10 years instead of the $142,560 they would have paid on a HELOC.
That's real protection in disaster scenarios, even though the baseline cost remains high.
Now let's talk about the serious downsides, because these products carry risks that can fundamentally impact your housing security and financial future.
This is the biggest danger that keeps me up at night when clients consider these agreements. When your contract term ends — typically in 10 to 30 years — you must repay the full amount in a single lump sum. Not monthly installments. Not a payment plan. The entire balance, which could be $200,000 or more.
Your options at that point:
A client I worked with recently told me her biggest regret was not thinking through what would happen in year 10. She was focused on solving today's problem (crushing credit card debt) without realizing she was creating a bigger problem for her future self.
The math doesn't lie. For most homeowners who can qualify for traditional financing, home equity agreements cost substantially more. We're talking about effective annual rates of 14% to 22% in many scenarios, compared to current home equity loan rates of 8% to 10% or HELOC rates of 9% to 11%.
Over a 10-year period, you might pay double or triple what a traditional loan would cost. That's tens of thousands to hundreds of thousands of dollars in additional expense.
I spend half my day trying to help people understand complex financial products, and I still find these agreements confusing when reviewing different companies' terms. There's no standardization in how they disclose costs, calculate repayment amounts, or structure their agreements.
One company uses multipliers on total home value. Another uses multipliers on appreciation only. A third discounts your starting value. Some credit you for renovations, others don't. Some have rate caps, others don't. Comparing these apple-to-orange-to-kiwi deals is genuinely difficult even for professionals.
The Consumer Financial Protection Bureau specifically called out this lack of standardized disclosures as a major consumer risk. Without clear, consistent information, you're making a decision without fully understanding what you're agreeing to.
The lien placed on your property by the home equity agreement company can complicate or block attempts to refinance your primary mortgage or take out additional financing. Some homeowners have been surprised to discover they couldn't refinance into a better rate because the home equity agreement holder wouldn't subordinate their lien.
This reduces your financial flexibility at exactly the times you might need it most.
Depending on your state and local tax rules, the lump sum you receive might be taxable. And unlike mortgage interest, any fees you pay aren't tax deductible. Check with a tax professional before assuming this money is tax-free.
When I look at Consumer Financial Protection Bureau complaints about home equity agreements, I see patterns that worry me:
Before you commit to a home equity agreement, explore these proven alternatives. For most homeowners, one of these will provide better long-term value.
This is your classic second mortgage. You borrow a lump sum using your home equity as collateral, then repay it over 5 to 30 years with fixed monthly payments. Interest rates currently range from 8% to 10.5% depending on your credit and lender.
When it works best: You need a specific amount for a one-time expense, want predictable payments, and can afford the monthly obligation.
Example: Borrow $75,000 at 9% for 10 years = $950/month payment, $39,000 total interest paid.
A HELOC functions like a credit card secured by your home. You get approved for a maximum credit line, then draw what you need during a 10-year draw period. You pay interest only on the outstanding balance during the draw period, then both principal and interest during a 20-year repayment period.
When it works best: You have ongoing expenses or uncertain funding needs, want flexibility to borrow and repay multiple times, and can handle variable interest rates.
Example: $75,000 line at 9.5% = $594/month interest-only payment if you use the full amount. After 10 years, payments increase to cover principal repayment.
You replace your existing mortgage with a new, larger loan and receive the difference in cash. This works best when current mortgage rates are close to or lower than your existing rate.
When it works best: You can secure a rate similar to your current mortgage rate, want to consolidate all debt into one payment, and have good credit.
Example: You owe $300,000 on a $500,000 home. Refinance to a new $375,000 mortgage at 7%, receive $75,000 cash. One monthly payment covers everything.
If you're 62 or older, a Home Equity Conversion Mortgage lets you convert home equity into cash without monthly payments. You repay when you move, sell, or pass away. These have their own complexities and costs, but they're federally insured and regulated with mandatory counseling.
When it works best: You're retired, need supplemental income, plan to stay in your home long-term, and understand the inheritance implications.
For smaller amounts (under $25,000), sometimes personal loans or even balance transfer credit cards can provide cheaper financing than home equity agreements, especially if you have decent credit.
A personal loan at 12% for $25,000 over 5 years costs you about $8,400 in interest. A home equity agreement on $25,000 could easily cost you $20,000 to $50,000 depending on home appreciation and your agreement terms.
If you've exhausted other options and believe a home equity agreement is your best path forward, approach the decision systematically. Shopping around and understanding terms could save you tens of thousands of dollars.
Repayment Calculation Method
Get crystal clear on exactly how each company calculates what you'll owe. Ask:
Run scenarios with each company's calculator showing best case, worst case, and moderate appreciation scenarios.
Term Length and Flexibility
Can you repay early without penalty? What happens if you want to sell before the term ends? Can you make partial payments? Does the term align with other financial goals (like your primary mortgage payoff)?
Renovation Credits
Some companies (like Hometap) credit you for value you add through renovations. Others (like Unlock) don't. If you're planning significant home improvements, this could make a substantial difference in your final repayment amount.
Fee Structure
Get a complete breakdown of:
Compare total upfront costs, not just the headline origination percentage.
Geographic Availability and Property Types
Verify the company operates in your state and works with your property type. Most focus on single-family owner-occupied homes in specific markets.
Company Reputation and Financial Backing
Research each company's:
Before signing, consider consulting:
The few hundred dollars you spend on professional advice could save you hundreds of thousands in the long run.
At AmeriSave, we focus on helping homeowners access their equity through traditional financing products that offer more predictable costs and clearer terms. While we don't offer home equity agreements, we do provide home equity loans and cash-out refinancing that might meet your needs with significantly lower overall costs.
Our philosophy is straightforward: homeowners deserve transparent financing with costs they can understand and payments they can plan for. Home equity loans and cash-out refinances might not have the "no monthly payment" marketing appeal of home equity agreements, but they offer:
If you have:
...we can likely structure a home equity loan or cash-out refinance that costs you substantially less over time than a home equity agreement.
Our loan officers specialize in helping homeowners understand exactly what they're paying, how their payments are calculated, and what alternatives might work better for their specific situation. We're willing to focus on "How can I make this work for this person," rather than just saying "this doesn't work" and being done with it.
Want to see if traditional financing could save you money? Start your mortgage application or connect with one of our loan specialists to explore your options.
I completely understand the appeal of home equity agreements when you're facing financial pressure. The promise of immediate cash without monthly payments feels like exactly the solution you need right now. But that must have been so stressful is what I always think when clients explain what brought them to consider these products.
Here's what customers never tell you when they share glowing testimonials on company websites: most people signing these agreements are in desperate financial situations where they don't have better options. They're not comparing costs analytically. They're solving today's crisis without fully thinking through tomorrow's consequences.
Let me simplify this for you one more time. For the vast majority of homeowners who can qualify for traditional financing, home equity loans or HELOCs will save you substantial money over the long term. The monthly payments might feel burdensome, but they keep your total costs predictable and manageable. You won't face a six-figure balloon payment in 10 years forcing you to sell your home.
Home equity agreements make sense in a narrow set of circumstances: you genuinely cannot qualify for any traditional financing, you have no other way to access needed funds, you understand and accept the high costs, and you have a realistic plan for repayment when the term ends.
If you're considering one of these agreements, please do these things first: explore every traditional financing option available through companies like AmeriSave, run realistic cost comparison scenarios with specific numbers, talk to a HUD-certified housing counselor or independent financial advisor, and make sure you understand exactly what repayment will require.
Your home is probably your most valuable asset and your biggest source of financial security. Making a decision that could force you to sell it years down the line deserves more than quick marketing appeals about "no monthly payments."
We're willing to focus on "How can I make this work for this person," rather than just saying you're out of options. Connect with AmeriSave to see if we can structure something that meets your needs without the risks of home equity agreements.
Remember: just breathe, take your time with this decision, and make sure you're choosing the option that protects your long-term financial stability, not just solving today's problem by creating a bigger one tomorrow.
Most home equity agreement companies advertise fast funding, typically completing the process in 3 to 6 weeks from application to receiving your money. This is genuinely faster than many traditional refinancing options that can take 30 to 60 days.
The process includes: initial application and prequalification which takes a few days, home appraisal scheduling and completion which requires 1 to 2 weeks, underwriting and contract review taking another 1 to 2 weeks, and finally closing and fund disbursement in the final few days. Point is particularly known for quick processing, while others vary based on current volume and your property's complexity.
Compare this to a traditional HELOC that might take 2 to 4 weeks or a cash-out refinance requiring 30 to 45 days. If you need money urgently and qualify for a home equity agreement, the speed can be legitimately helpful. However, speed shouldn't be the primary factor in a decision that could cost you hundreds of thousands of dollars over time.
Most companies allow early repayment without prepayment penalties, but there are important nuances. You typically cannot make partial payments - it's all or nothing. So to pay off early, you need the full repayment amount, which might be substantial even early in the term.
Some companies have restrictions on repayment timing. For example, they might not allow payoff during the first 6 to 12 months. Others calculate early payoff using their standard appreciation formulas, meaning you still owe more than you received even if you repay quickly. Unlock is unique in offering partial buybacks, letting you repurchase your equity in pieces rather than all at once.
The practical reality is most homeowners repay these agreements when they sell their home or refinance their primary mortgage. Few have access to large lump sums needed for early payoff without triggering another financial transaction.
This is one of the few areas where home equity agreements can actually benefit homeowners compared to fixed-rate debt. If your home depreciates significantly, your repayment amount decreases as well since it's calculated based on the property's future value.
Using the CFPB's example, if you received $50,000 but your home dropped 30% in value and recovered slowly, you might owe around $81,000 after 10 years instead of $179,000 if the home had appreciated normally. That's still $31,000 more than you received, but substantially less than the appreciation scenario.
However, most home equity agreement contracts are structured with multipliers and discounts that protect the company even in moderate depreciation. Your home would typically need to lose 20% to 50% of its value before the company starts losing money on the deal. Short of a major housing crisis, you're likely paying substantially more than you received regardless of modest market fluctuations.
The initial application typically involves a soft credit inquiry that doesn't impact your score. Once you're approved and the company does a hard inquiry, you'll see a small temporary decrease of a few points.
The home equity agreement itself doesn't show up as a loan or debt on your credit report since it's not traditional debt. This means it doesn't directly improve your credit by adding positive payment history. However, if you use the funds to pay off high credit card balances or other reporting debts, your credit utilization could improve, potentially increasing your score.
The risk comes if you default on your primary mortgage or property tax obligations during the agreement term. Since those do report to credit bureaus, falling behind affects your credit normally. Additionally, the lien on your property can complicate future credit applications even though it's not directly scoring against you.
Most home equity agreement companies focus exclusively on owner-occupied primary residences, but Point is a notable exception. They offer agreements on investment properties, second homes, and even properties owned by LLCs, though they charge premium fees for these arrangements.
The logic is straightforward: companies want properties where owners have strong incentives to maintain the home and keep up with obligations. Investment properties carry higher risk since owners might walk away more easily during market downturns. If you're an investor looking to tap equity from rental properties, Point is essentially your only mainstream option right now.
For most real estate investors, traditional financing like cash-out refinancing or business lines of credit offer better economics anyway. Investment property loans typically have slightly higher rates than owner-occupied, but they're still cheaper than home equity agreement terms in most scenarios.
This varies significantly by company and is an absolutely critical factor to understand before signing.
Hometap explicitly credits homeowners for renovations that increase property value, typically requiring documentation and appraisals after completion. If you invest $50,000 in a kitchen remodel that increases your home's value by $60,000, Hometap excludes that appreciation from their share calculation. This policy makes Hometap attractive if you're planning significant improvements.
Unlock doesn't credit renovations, meaning any value you add through improvements gets split with the company according to your agreement terms. If you're adding a $40,000 addition and the company has a 20% stake, they effectively get $8,000 of the value you created.
Point and Unison have varying policies depending on the specific contract structure. Before signing with any company, get explicit written confirmation of how they handle improvements, what documentation is required, and whether preapproval is needed for renovation credits.
This is where many homeowners run into unexpected complications. The home equity agreement company holds a lien on your property, and most require that their lien stays in place even if you refinance your first mortgage. Getting them to subordinate (agree to remain in second position) isn't automatic.
Some companies charge fees to subordinate their lien for a refinance. Others might refuse entirely, effectively blocking you from refinancing until you repay the home equity agreement in full. This has caused problems for homeowners who wanted to refinance into lower rates but couldn't because the home equity agreement company wouldn't cooperate.
Before signing the original agreement, ask explicitly: What is your policy on subordination for primary mortgage refinancing? Are there fees? What's the typical timeline for approval? Getting these answers upfront can prevent frustration later when you discover you're locked out of refinancing opportunities.
Not consistently, which is part of the problem. Home equity agreements exist in a regulatory gray area. Companies argue they're not loans since there's no interest charged and no monthly payments, so traditional lending regulations don't apply. Consumer advocates and some state regulators disagree.
Massachusetts Attorney General Andrea Campbell sued Hometap in 2024, arguing these products function as illegal reverse mortgages without proper consumer protections. Connecticut, Illinois, and Maryland have passed laws treating home equity agreements as loans subject to consumer lending regulations. Other states are considering similar legislation.
At the federal level, the Consumer Financial Protection Bureau issued a detailed report in January 2025 outlining concerns about these products' complexity, costs, and risks to consumers. The CFPB hasn't implemented specific regulations yet but is clearly monitoring the market.
This inconsistent regulation means consumer protections vary dramatically by state. Some homeowners have access to complaint processes and regulatory oversight while others don't. It's another factor making these products riskier than traditional mortgages with clear regulatory frameworks.
This is the worst-case scenario and the one that keeps me up at night for clients considering these agreements. When your term ends - whether that's 10, 20, or 30 years - you must repay the full amount in a single payment. If you can't, your options narrow quickly.
Some companies might offer to roll you into a new home equity agreement if you have sufficient remaining equity. However, this just extends the problem and potentially makes it larger since you're compounding costs. You'd essentially be taking out a new agreement to pay off the old one, with all new fees and terms.
If refinancing isn't possible due to credit issues, age, or market conditions, and you don't have liquid assets to pay the balance, selling your home becomes the only option. The company has a lien on your property, which means they get paid from the sale proceeds before you receive anything. If home values haven't appreciated enough or you're underwater on your primary mortgage plus the agreement, you could face a genuine housing crisis.
Some contracts technically allow for foreclosure if you can't pay, though companies haven't been in business long enough for us to see widespread foreclosure activity yet. The first wave of 10-year contracts from companies like Point is just starting to mature, so we'll learn more about how these situations play out in the coming years.
The single best method is creating side-by-side scenarios with realistic assumptions about your home's appreciation and your financial situation. Here's the framework I use with clients:
Start by getting concrete quotes from both home equity agreement companies and traditional lenders for the same dollar amount. For the home equity agreement, run their calculators with three scenarios: conservative appreciation at 2% to 3% annually, moderate appreciation at 4% to 5% annually, and optimistic appreciation at 6% to 7% annually.
For traditional loans, calculate total costs including all interest and fees over your expected repayment timeline. A $75,000 home equity loan at 9% for 10 years costs you $39,000 in interest plus maybe $2,000 in closing costs, so $116,000 total. A $75,000 HELOC at 9.5% interest-only for 10 years costs $67,560 in interest if you don't pay down principal.
Compare these real numbers to what you'd owe under each home equity agreement scenario. In most cases, unless your home depreciates significantly or you're in the absolute best-case home equity agreement structure, traditional financing costs less. The gap often ranges from $50,000 to $150,000 over a 10-year period.
Factor in intangibles too: monthly payment affordability, forced sale risk, refinancing flexibility, and complexity of understanding terms. Sometimes the cheaper option isn't worth the stress and risk if you genuinely can't afford monthly payments. But understand the real cost difference before making that decision.
This is one of the most common use cases I see, and it's rarely the best choice despite seeming logical on the surface. Yes, credit card interest at 18% to 28% is painful. Yes, consolidating into "no interest" sounds amazing. But let me walk through why this often backfires.
Credit card debt is unsecured, meaning the worst outcome for default is damaged credit and potentially a lawsuit for the balance. It's not great, but you won't lose your home. Once you use a home equity agreement to pay off that debt, you've converted unsecured debt into a lien on your house. The credit card company can't take your home, but the home equity agreement company can.
Additionally, credit card interest might be 20%, but it's calculated on a declining balance as you make payments. Home equity agreement costs of 15% to 22% annually apply to growing balances since you're making no monthly payments. Over time, you could easily pay more total dollars on the home equity agreement than if you'd just aggressively paid down the cards.
Consider better alternatives first: balance transfer credit cards at 0% for 12 to 18 months, personal loans at 10% to 15% that you actually repay monthly, credit counseling programs that negotiate lower rates with your card companies, or even traditional home equity loans if you qualify.
If you're so deep in credit card debt that none of those options work, you might actually need to consider bankruptcy rather than risking your home on a home equity agreement. That probably sounds scary, but protecting your housing security is more important than avoiding bankruptcy on your credit report for 7 to 10 years.
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