Reverse Mortgage vs. Home Equity Investment: What REALTORS® Need to Know

Your older client tells you her home is almost paid off. Great! That should make the sale of her home and the purchase of a right-sized home pretty easy.

Then she mentions something that changes the conversation: A company gave her a large sum of money a few years ago. She doesn’t make monthly payments. The company will get paid when she sells the house or when the agreement ends.

“Oh,” she says. “It’s sort of like a reverse mortgage.”

Except it isn’t. This may be what some home equity investment groups (or HEIs) tell the homeowners, but they’re wrong.

And if you work with older homeowners, downsizers, or clients trying to use the equity from one home to purchase the next, I believe you need to understand the difference.

A home equity investment (HEI), also called home equity agreements, home equity sharing agreements, or home equity contracts, are being heavily advertised to senior homeowners as a way to access equity without taking out a traditional loan.

A home equity investment ad may focus on no monthly payments and no traditional interest.

Those phrases sound attractive.

Unfortunately, the ads don’t tell the homeowner what, when, and how they will end up having to pay the home equity investment group.

And that’s where I have serious concerns about these products.

What Is a Home Equity Investment?

A home equity investment generally works like this:

1. A home equity investment group provides the homeowner with cash today. In exchange, the homeowner signs a contract requiring a future settlement based on a contractual formula that is typically tied, at least in part, to the home’s value. Usually, it’s presented simplistically as splitting half of the equity growth between now and the end of the agreement, usually in 10 or 30 years.
2. The home equity investment company secures its interest against the property with a legally binding agreement.
3. At the end of the home equity investment agreement, the homeowner must fully satisfy the payment owed to the home equity investment group. The Consumer Financial Protection Bureau finds that the typical settlement amount in a home equity investment grows at an average of 19.5% to 22% annually. That’s more than three times the interest rates of FHA-insured reverse mortgages.
4. If the homeowner doesn’t have the financial resources (savings) to repay the home equity investment off at the end of the agreement term, they will be forced to sell their home. And the amount left for them to use to purchase a right-sized home is significantly reduced.

There may be no monthly payment. The agreement may not be characterized as a traditional mortgage loan. The company’s return may not be described as “interest.”

But don’t let terminology obscure the economic reality REALTORS® need to recognize.

The homeowner receives money now. The company expects to receive money later. And the company entered into the transaction expecting to make a profit.

That profit has to come from somewhere.

Ultimately, it comes from the value of the homeowner’s equity and the settlement required under the contract.

No Interest Rate Doesn’t Mean No Cost

This is one of my biggest concerns with a home equity investment.

When you take out a traditional mortgage, the cost of borrowing is expressed through familiar lending concepts. There is an interest rate. There are disclosures. There is generally an amortization schedule showing how payments affect principal and interest over time. Lenders are required to provide a TALC (Total Annual Loan Cost). Because home equity investment groups don’t call themselves lenders, they aren’t required to provide such disclosures.

A HECM reverse mortgage works differently from a traditional forward mortgage, but it is still a mortgage loan subject to an extensive federal regulatory framework.

A home equity investment may be structured differently and may not describe the investor’s return as interest. When the CFPB, as noted above, finds that such returns run around 20% annually, it’s no wonder the home equity investment group doesn’t want to disclose that.

So, despite the insinuations in the advertisements, the homeowner is not receiving free money.

And because these home equity investment agreements don’t work like amortizing mortgages, homeowners generally aren’t handed the familiar mortgage amortization schedule that shows, month by month, exactly how a loan balance changes.

Instead, the eventual settlement depends on the contract.

That distinction should concern anyone helping an older homeowner plan what happens next.

The Investor Is Making an Investment

Let’s talk plainly about the word “investment.”

If a home equity investment company puts money into a homeowner’s property, the company isn’t doing it as a public service. It expects a return. And the bigger the return, the better for the group’s investors.

There is nothing inherently improper about a business seeking a profit. Mortgage lenders, banks, real estate brokerages, insurance companies, and investment firms all operate for profit.

My concern is different.

When the asset involved is an older homeowner’s house, the consequences of misunderstanding the agreement can be enormous.

This isn’t an abstract investment sitting in a brokerage account.

It’s someone’s home.

And for many older homeowners, the equity in that home may represent a substantial portion of the resources available to fund their next chapter.

That’s why I believe these arrangements deserve strong consumer protections and very clear disclosure of what the homeowner could ultimately be required to pay.

“No Monthly Payments” Can Hide the Question That Matters Most

Both a HECM and an home equity investment can involve no traditional required monthly mortgage payment.

That’s one reason homeowners may confuse them.

But “no monthly payment” tells you almost nothing about what happens later.

The much more important questions are:

• How is the future obligation calculated?
• When does it become due?
• How large could the settlement become?
• What happens if the homeowner can’t pay it?

According to the Consumer Financial Protection Bureau, home equity investment contracts commonly have terms ranging from 10 to 30 years. At the end of the term, the homeowner must settle the agreement.

As a REALTOR, think about what that means to your potential client.

The homeowner doesn’t necessarily have to decide to sell, but if they want to right-size, they will have significantly less equity to realize in the home sale for putting toward their next home.

This is where a home equity investment settlement becomes a very real housing problem.

The Danger Is at the Exit

This is the part I especially want REALTORS® to understand.

Suppose your seller tells you:

“They gave me $50,000 several years ago.”

Do not assume that means approximately $50,000 will come out of the sale proceeds.

The settlement calculation will likely produce a very different and much larger number.

Because they’re not regulated, home equity agreement contracts use different formulas, and home appreciation, contractual multipliers, valuation methods, caps, adjustments, and other provisions can affect what the homeowner ultimately owes. This are not the simple and straight forward arrangements insinuated in their ads.

In its 2025 review of the home equity contract market, the Consumer Financial Protection Bureau reported consumer complaints involving:

• Unexpectedly large settlement amounts
• Disputes over property valuations
• Difficulty refinancing because of the home equity contract
• Confusion about contract terms
• Homeowners who felt selling their homes was their only viable way to settle the agreement

And then we get to the consequence REALTORS® should not overlook.

The CFPB warns that homeowners who cannot make the required settlement payment at the end of the contract may have to sell the home or face foreclosure.

That isn’t a minor disclosure buried in a financial product comparison.

We’re talking about the possibility of losing the home and most of its equity.

Why I Believe HEIs Need Stronger Consumer Protections

I’ll be clear about my position.

I am deeply concerned about home equity investments as they are currently structured and marketed, and I believe homeowners deserve stronger protections.

Calling something an “investment” or saying it has “no interest” doesn’t eliminate the financial consequences of the agreement.

A company provides money today with the expectation of receiving a profit later.

When that transaction involves a lien or other security interest against someone’s home and can ultimately result in a required lump-sum settlement, I believe consumers deserve protections commensurate with what is at stake.

The CFPB itself has raised questions about whether some home equity contracts may actually constitute credit under federal consumer financial law, depending on how they are structured.

That regulatory debate matters.

But REALTORS® don’t need to resolve it.

You need to recognize the potential problem sitting in front of you.

A HECM Isn’t the Same Thing

A Home Equity Conversion Mortgage is a reverse mortgage loan insured by the Federal Housing Administration. How are your potential senior homeowners protected with these loans?

• HECM borrowers must receive counseling from a HUD-approved housing counseling agency before obtaining the loan.
• The homeowner retains title.
• There is generally no required monthly mortgage payment, but the borrower remains responsible for applicable property taxes, homeowners insurance just as a traditional mortgage borrower does.
• Interest and applicable charges accrue to the loan balance and are clearly noted on required monthly statements provided to the borrower.

And HECMs include specific federal requirements and consumer protections because they are regulated mortgage loans.

That doesn’t make a HECM appropriate for every homeowner.

It doesn’t mean HECMs have no costs.

And it certainly doesn’t mean HECM borrowers can ignore their obligations.

It means we’re comparing fundamentally different arrangements.

REALTORS®: Listen for These Statements

If you’re working with an older homeowner, pay attention when you hear:

• “I don’t have a mortgage payment.”
• “A company invested in my house.”
• “They bought some of my equity.”
• “They gave me cash, but it wasn’t a loan.”
• “They get paid when I sell.”
• “They share in the appreciation.”
• “I have to settle with them eventually.”
• “It’s sort of like a reverse mortgage.”

Those aren’t signals that you should start giving financial advice.

They’re signals that you should ask another question.

Don’t Say, “That’s Basically a Reverse Mortgage”

It isn’t.

And telling a homeowner that it is could create a false sense that you understand the arrangement when you haven’t even seen the contract.

Instead, try:

“There are several ways homeowners can access their equity without making traditional monthly mortgage payments, and they can work very differently. Before we estimate your proceeds or make plans for your next home, let’s make sure the appropriate professionals determine exactly what you have and what would be required to satisfy it.”

That’s enough.

You recognized the issue.

Now get the right people involved.

REALTORS®: Don’t Calculate This Yourself

Here’s another place I want you to be careful.

Your homeowner says:

“They gave me $75,000, so we’ll probably need to pay back about $75,000 when we sell.”

Don’t put $75,000 on the seller’s estimated net sheet based on that statement.

Don’t calculate the home equity investment settlement yourself.

Don’t try to interpret the contract.

Get the actual settlement information.

The CFPB provides a hypothetical example of just how dramatically these numbers can change.

Its example involves a homeowner receiving $50,000 against a home initially valued at $500,000. Under the hypothetical contract terms and assuming 6% annual home appreciation, the settlement would be $86,400 after three years and $179,085 after ten years.

That is only an illustration. It does not tell us what any particular homeowner will owe.

But it demonstrates something REALTORS® absolutely need to understand:

The check received years ago and the amount required to exit the agreement today can be two very different numbers.

This Can Affect More Than the Sale

Now think about your older client’s next move.

Your seller plans to sell a $600,000 home.

She believes she has enough equity to purchase a $450,000 home closer to her children.

Maybe she expects to buy it outright.

Maybe she’s considering financing.

Maybe she’s exploring HECM for Purchase because she wants to preserve some of her available cash.

All of those plans depend on one fundamental question:

How much equity will actually be available from the current home?

If a home equity investment settlement consumes substantially more of the proceeds than your client expected, her entire housing plan may change.

That’s why this isn’t merely a financial-product issue.

It’s a real estate issue.

And it’s why REALTORS® who work with older homeowners should learn to recognize home equity investments.

Discover It Before You’re Under Contract

The worst time to discover an unfamiliar home equity agreement is when everyone is counting down to closing.

If your client mentions an HEI, shared-equity arrangement, or another unfamiliar claim against the property, address it early.

Encourage the homeowner to locate the actual documents.

Get the appropriate title or settlement professionals involved.

When necessary, encourage the homeowner to consult qualified legal, tax, lending, financial, or housing-counseling professionals.

And stay in your professional lane.

A REALTOR® should not determine whether the agreement is legally enforceable, interpret contractual language, calculate the homeowner’s obligation, provide legal or financial advice, or tell the homeowner whether entering the agreement was a mistake.

Your job is:

Recognize. Communicate. Coordinate. Refer.

That’s enough.

And it can be enormously valuable.

One Question Could Prevent a Very Unpleasant Surprise

When a client tells you:

“I took money out of the house, but I don’t make payments.”

Don’t automatically hear:

Reverse mortgage.

Ask:

“Tell me a little more about what you have.”

You may discover a HECM.

You may discover a home equity investment or home equity sharing agreement.

Or you may discover something else entirely.

What matters is that you discovered it before you started making assumptions about equity, proceeds, or the homeowner’s next move.

For REALTORS® serving older homeowners, that’s becoming an increasingly important conversation.

And when someone’s home, equity and future housing choices are on the line, “no monthly payment” is nowhere near enough information.

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REALTOR® FIELD REMINDER

When an older homeowner says “no monthly payment,” don’t assume “reverse mortgage.”

Recognize: There may be a HECM, HEI, shared-equity agreement, HELOC, or another arrangement.

Communicate: Explain that these arrangements can work very differently and may affect the transaction.

Coordinate: Identify the issue early enough for the appropriate professionals to determine what must be satisfied.

Refer: Don’t interpret contracts or provide legal, mortgage, tax, or financial advice. Refer those questions to qualified professionals.