You might have seen ads about a new way to cash in your home equity with no interest or payments. Are they legit? Or is there also a foreign prince who needs your help and a million-dollar prize waiting for you?
It depends on whom you ask. Shared equity can simply mean a way for two or more people to finance a home purchase and divide its ownership. But this article isn’t about that. It’s about a new type of borrowing.
What Is a Shared Equity Mortgage?
Shared equity loan products are different from straightforward home equity loans.
— The loans are also called home equity investment loans, or HEI.
— Shared equity/appreciation providers don’t generally call themselves lenders. They use the term “investor.”
— Shared equity companies don’t call their product a loan. They prefer the term “share” or “investment.”
— The borrower pays no interest.
— The borrower makes no monthly payments during the mortgage term.
— The loan balance becomes due in full at the end of the loan term or sooner if the borrower sells the home.
— Mortgage terms are usually 10 years but can be up to 30 years.
— Qualifying is much easier than for home equity loans, with some lenders accepting credit scores as low as 500.
[Read: Best Mortgage Lenders]
How Does a Shared Equity Loan Work?
Shared equity agreements provide you with money today in exchange for a percentage of your home’s future value.
A typical agreement advances you up to 25% of your property value for a 10-year term. You usually pay an origination fee (3% to 5%) and closing costs. When your term is up (or sooner if you sell the property or terminate your agreement early), you pay the provider a share of the home’s appraised value. The split depends on the percentage of equity the provider advances you and how many years you have the arrangement.
“The legal agreement is structured as an option contract. In exchange for providing the homeowner a lump sum of cash up front, (the provider) purchases the right to acquire an agreed-upon portion of the home’s future value,” says Jonathan MacKinnon, senior vice president of product strategy and business development at Hometap, a fintech company that offers HEI loans.
Here’s an example using a real-life estimate from one company. This is Scenario A on the table below.
— Property value: $500,000
— Amount advanced (10%): $50,000
— Other costs: (3.5% origination fee + $1,000 third-party closing costs): $2,750
— Value after 10 years (4.34% appreciation): $764,678
— Shared equity company split (20%): $152,936
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Is that a good deal? The cost is equivalent to a zero payment loan with a 12.27% interest rate. That’s expensive for a loan secured by real estate. But this could be a good deal if you have a poor credit rating or lack the income to qualify for cheaper financing. MacKinnon says that his company “doesn’t offer different terms to qualifying homeowners based on creditworthiness.” That can be a real benefit to consumers who are routinely denied credit or offered high rates based on their credit profile.
Cost of Equity Share Arrangements
But wait, there’s more. The final cost depends on how much your property appreciates and the number of years before you repay the money. Consider three additional scenarios:
— Scenario B. You sell your home after just three years. For repayment within three years, this lender charges 15% of the property value. Because you have use of the borrowed funds for just three years, the rate jumps to 20.91%.
— Scenario C. The property value doesn’t increase. You pay 15% of your property value, and the interest rate is just 4.51%.
— Scenario D. The property appreciates at 6% per year. You get more home value, the lender gets a bigger split and the interest rate is 14.01%.
These scenarios demonstrate the unpredictability of equity sharing arrangements. You don’t know how much or how little your property value will change over the years. And you may not know how long you’ll stay in the property.
You’ll also pay closing costs with a shared equity loan:
— Appraisal fees
— Escrow fees
— Title insurance
— Recording fees
In addition, many investors charge a funding, origination or translation fee that runs between 3% and 5%. And then there’s the split you’ll pay at the end. Some plans include provisions that cap the annual interest at about 20%.
[Calculate: Use Our Free Mortgage Calculator to Estimate Your Monthly Payments.]
Shared Appreciation Mortgage
Shared appreciation mortgages work a little differently. They require you to pay back the amount you borrow, plus some percentage of your home’s increase in value over the loan term. This can be tricky because providers often adjust the initial home appraisal downward, so the borrower owes more than they borrowed from Day One.
Undervaluing the property also increases the appreciation on which the homeowner’s repayment will be based. One company discloses that its repayment equals 15% to 69% of the property appreciation in addition to the amount borrowed. It also states that, “We apply a home value risk adjustment of 27%. The risk adjustment helps offset any short-term price volatility to protect the original investment and makes it possible to offer no prepayment penalties.”
Here’s how that looks in real money:
— The home appraises for $500,000.
— The lender discounts it by 27% to $365,000.
— Depending on how much you borrow, this ensures the lender a profit of $20,250 even if the property doesn’t appreciate at all. Plus, the borrower pays back the original loan amount.
Not Everyone’s a Fan
Some consumer groups are sounding the alarm on these products.
“We believe they pose a serious problem and are dangerous for homeowners. The marketing is deceptive, and the documents are so complicated as to be incomprehensible. The ones we’ve seen are abusive, and we believe they violate federal and state law,” says Andrew G. Pizor, senior attorney at the National Consumer Law Center.
The Consumer Financial Protection Bureau says, “Home equity contracts are complex financial contracts, and the current lack of standardized disclosures can make it difficult to understand them or compare them to other options. Consumers report feeling frustrated or even misled about a variety of home equity contract features — including the overall cost, the way the contract mechanics work, disputes about home values, hurdles to refinancing their first-lien mortgage due to the existence of a home equity contract, and surprise that they might be forced to sell their home.”
However, the CFPB acknowledged on its site that there have been relatively few consumer complaints to date — 35 in 2025 — possibly because the products are relatively new. And the agency indicates that some companies are conscientious.
“Some home equity contract companies,” says the CFPB, “have taken steps to help consumers better understand the terms of their products’ risks. Some require homeowners to pass knowledge checks or get homeownership counseling prior to origination. They may also provide regular statements that show an estimate of the home’s current value and repayment amount. Some home equity contracts are structured to have rate caps … that limit how quickly the settlement amount can grow. Many have disclosure forms, but they are not standardized.”
Not everyone’s impressed. “Our primary advice to consumers is to stay away from these products,” Pizor says.
[Read: Best Mortgage Refinance Lenders.]
Shared Equity Pros and Cons
Borrowing against future equity can make sense for some people if they don’t have better options and if they understand the risk. Here are the pluses and minuses.
What to Consider With Shared Equity or Shared Appreciation
Understand that shared equity is not regulated the same way as mortgage lending, and terms vary wildly among providers. Expect to comb through a lot of fine print, and don’t sign anything until you know:
— How your home’s starting value will be determined
— How your property appreciation and split will be calculated
— The penalties, if any, for exiting the agreement early
— Your options for repaying your loan — when and how
— When the investor can foreclose
— Other fees and closing costs
— Caps on annual charges
Shared equity or appreciation products aren’t for everyone, and there may be a real devil in those details. But they can be right for some homeowners, if they don’t have access to better options and if they understand the risk and costs.
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Too Good to Be True? How a Shared Equity Mortgage Works originally appeared on usnews.com
Update 02/23/26: This story was previously published at an earlier date and has been updated with new information.
