HELOC vs. HECM vs. HEI: The Complete Guide to Tapping Your Home Equity in 2026

The $34 Trillion Question: How Should You Access Your Home Equity?

American homeowners are sitting on a record $34 trillion in home equity, according to Federal Reserve data from Q3 2025. For millions of households—whether managing retirement on a fixed income, consolidating high-interest debt, funding home improvements, or covering unexpected expenses—that equity represents a potential financial lifeline.

But accessing it requires navigating an alphabet soup of options: HELOCs, HECMs, HEIs, home equity loans, cash-out refinances, and more. Three products in particular—the Home Equity Line of Credit (HELOC), the Home Equity Conversion Mortgage (HECM or reverse mortgage), and the Home Equity Investment (HEI)—dominate conversations about tapping equity without selling your home.

Each serves fundamentally different purposes, carries distinct costs, and works best for specific borrower profiles. Choosing the wrong product can cost you tens of thousands of dollars—or worse, put your homeownership at risk.

This comprehensive guide breaks down how HELOCs, HECMs, and HEIs actually work in 2026, who they’re right for, what they truly cost, and how working with experienced mortgage advisors like Dustin Dumestre and the F1Lenders team can help you make the right choice for your situation.

Part 1: Understanding the Basics

What is a HELOC?

A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by your home, functioning similarly to a credit card. You’re approved for a maximum credit limit based on your available equity, and you can borrow, repay, and borrow again during the draw period (typically 10 years). After the draw period ends, you enter the repayment period (typically 10-20 years) where the line closes and you pay down the balance.

Key Features:

Variable interest rate tied to Prime Rate (currently 6.75% as of early 2026)
Current average rates: 7.23-7.31% nationally (Bankrate, Curinos data February 2026)
Draw period: Typically 10 years (interest-only payments)
Repayment period: Typically 10-20 years (principal + interest payments)
Credit limits: Usually up to 80-90% Combined Loan-to-Value (CLTV)
Monthly payments required throughout the life of the credit line

Example:

Home value: $500,000
Existing mortgage: $300,000
Equity: $200,000
HELOC limit at 80% CLTV: $100,000
- Calculation: ($500,000 × 0.80) – $300,000 = $100,000

What is a HECM (Reverse Mortgage)?

A Home Equity Conversion Mortgage (HECM) is the FHA-insured reverse mortgage program available exclusively to homeowners aged 62 and older. Unlike traditional mortgages where you make payments to build equity, a HECM allows you to convert existing equity into cash—either as a lump sum, line of credit, monthly payments, or combination—without making monthly mortgage payments (though you must continue paying property taxes, insurance, and maintenance).

Key Features:

Age requirement: 62+ years old (youngest borrower or eligible non-borrowing spouse)
2026 FHA lending limit: $1,249,125 (up from $1,209,750 in 2025)
No monthly mortgage payments required (interest accrues and compounds)
Non-recourse loan: You or heirs never owe more than home’s value when sold
Loan becomes due when you sell, move out permanently (12+ months), or pass away
Must maintain property taxes, homeowners insurance, HOA fees, and home maintenance

How Much Can You Access: The amount available (called the “principal limit”) depends on:

Age of youngest borrower (older = more available)
Current interest rates (lower rates = more available)
Home value (up to FHA limit of $1,249,125)
FHA’s Principal Limit Factor tables

Example:

70-year-old homeowner
Home value: $600,000
Current expected interest rate: 5.5%
Existing mortgage: $150,000
Available HECM proceeds: Approximately $245,000-$265,000 (varies by specific PLF)
- Must pay off $150,000 existing mortgage first
- Net cash available: $95,000-$115,000

What is an HEI (Home Equity Investment)?

A Home Equity Investment (HEI)—also called a Home Equity Agreement (HEA) or Home Equity Sharing Agreement (HESA)—is not a loan. Instead, it’s a contractual agreement where an investment company gives you a lump sum of cash now in exchange for a percentage share of your home’s future value. You don’t make monthly payments, but when the agreement ends (typically 10-30 years) or when you sell, you must pay back the original amount plus the company’s share of any appreciation (or minus their share of any depreciation).

Key Features:

Not a loan (no interest rate, not reported to credit bureaus)
No monthly payments required
Term length: Typically 10-30 years
Investment amounts: Usually $15,000-$600,000 (capped at ~25% of home value)
No income or credit score requirements in many cases
Settlement required at end of term, when selling, or when refinancing
Company shares both appreciation AND depreciation

How Pricing Works:

There are two common HEI pricing models:

Share of Appreciation Model: Company receives a percentage of future appreciation
- Example: You get $75,000; company gets 15% of appreciation
- Home appreciates $200,000 over 10 years
- You owe: $75,000 + ($200,000 × 0.15) = $105,000
Share of Home Value Model: Company receives a percentage of home’s total value at settlement
- Example: You get $50,000; company gets 10% of future home value
- Home sells for $650,000 ten years later
- You owe: $650,000 × 0.10 = $65,000

Major HEI Companies in 2026: Hometap, Point, Unlock, Unison, Splitero, Aspire HEI

Part 2: The Side-by-Side Comparison

Feature	HELOC	HECM (Reverse Mortgage)	HEI (Home Equity Investment)
Product Type	Revolving credit line	FHA-insured loan	Investment contract (not a loan)
Age Requirement	18+ (typically 21+)	62+ required	18+ (any age)
Monthly Payments	✅ Required (interest-only during draw, P+I during repayment)	❌ None required (interest accrues)	❌ None required
Interest Rate	Variable (Prime + margin), currently 7.23-7.31% avg	Fixed or variable options, FHA-insured	❌ No interest (not a loan)
Credit Requirements	Good credit (620-680+ minimum)	Minimal (financial assessment)	Minimal (often no credit check)
Income Verification	✅ Required (must prove ability to pay)	Financial assessment only	❌ Usually not required
Typical Amount	$30,000-$250,000 (80-90% CLTV)	$50,000-$500,000+ (based on age/value)	$15,000-$600,000 (up to ~25% of home value)
Upfront Costs	Low ($0-$1,500 typical)	High ($10,000-$20,000+)	Medium ($3,000-$15,000, often 3-5% of investment)
How You Repay	Monthly payments throughout life of line	When you sell/move/die	Lump sum at end of term or when selling
Total Cost	Interest paid monthly over life of line	Interest compounds; total owed grows over time	Share of appreciation (can be 2-4x original amount)
Tax Deductibility	Interest may be deductible if used for home improvements	Interest deductible when paid (usually at end)	❌ Not deductible (not a loan)
Risk if Home Value Drops	You still owe full amount	FHA non-recourse protection	Company shares loss (you owe less)
Best For	Working-age homeowners who can afford payments	Seniors 62+ needing to eliminate mortgage payment or supplement income	Homeowners who can’t qualify for loans or can’t afford monthly payments

Part 3: Deep Dive – HELOCs in 2026

Current HELOC Market Conditions

As of February 2026, HELOC rates have declined significantly from their June 2024 peak of 9.18%, now averaging 7.23-7.31% nationally according to Bankrate and Curinos. This represents a near three-year low, making HELOCs increasingly attractive for homeowners with equity.

Rate Forecast for 2026: Bankrate’s Ted Rossman projects HELOC rates to average 7.3% in 2026, with potential for three quarter-point Federal Reserve cuts that could bring rates into the high-6% range by year-end. However, with core inflation still above 2.5% and the Fed signaling caution, dramatic rate drops below 6.5% are unlikely in 2026.

How HELOC Rates Are Calculated

HELOCs use a variable rate structure:

Base rate: Prime Rate (currently 6.75% as of February 2026)
Margin: Lender adds 0.50% to 1.50% depending on creditworthiness
Your rate: Prime + Margin
- Example: 6.75% Prime + 0.75% margin = 7.50% HELOC rate

Your margin is fixed for the life of the HELOC, but the Prime Rate fluctuates with Federal Reserve policy. When the Fed cuts rates, your HELOC rate drops. When the Fed raises rates, your rate increases.

HELOC Qualification Requirements

To qualify for a HELOC in 2026, you typically need:

✅ Credit Score: 680+ for best rates (620 minimum at many lenders)
✅ Debt-to-Income Ratio: Under 43-50% including the new HELOC payment
✅ Home Equity: At least 15-20% (80-85% CLTV maximum)
✅ Income Documentation: W-2s, pay stubs, tax returns
✅ Employment Verification: Stable income source
✅ Property Type: Primary residence, second home, or investment property (rates vary)

HELOC Costs Breakdown

Upfront Costs (often waived by competitive lenders):

Application/origination fee: $0-$500
Appraisal: $400-$600 (sometimes waived)
Title search/insurance: $200-$400
Recording fees: $50-$150
Total typical closing costs: $0-$1,500

Ongoing Costs:

Annual fee: $0-$75
Transaction fees: Some lenders charge $10-$50 per draw
Inactivity fees: Some charge if you don’t use the line

Interest Costs (the main expense):

Monthly interest payments during draw period
Principal + interest payments during repayment period

Example Monthly Payment:

$75,000 HELOC at 7.5% rate
Draw period (interest-only): $469/month
Repayment period (15-year amortization, P+I): $695/month

HELOC Advantages

✅ Flexibility: Borrow what you need, when you need it
✅ Lower rates than credit cards: 7.3% vs. 19%+ for credit cards
✅ Interest-only payments during draw period: Manage cash flow
✅ Revolving credit: Repay and re-borrow during draw period
✅ Keep your first mortgage: Don’t give up a low primary mortgage rate
✅ Tax deductible interest (if used for home improvements, consult tax advisor)
✅ No age restrictions: Available to all qualifying homeowners

HELOC Disadvantages

❌ Variable rate risk: Rates can increase if Fed raises rates
❌ Monthly payments required: Must have cash flow to make payments
❌ Payment shock: When draw period ends, payments jump significantly
❌ Foreclosure risk: Failure to pay can result in losing your home
❌ Requires good credit and income: Strict qualification standards
❌ Potential for credit line freeze: Lenders can reduce/freeze lines in declining markets

When a HELOC Makes Sense

Ideal Use Cases:

✅ Home renovations that add value (kitchen, bathroom, additions)
✅ Debt consolidation (paying off 18-24% credit cards with 7% HELOC)
✅ Emergency fund/financial flexibility for unexpected expenses
✅ Investment opportunities where return exceeds 7.5% cost
✅ Education expenses as alternative to higher-rate student loans
✅ Bridging gap between selling current home and buying new one

Poor Use Cases:

❌ Funding vacations or depreciating assets (cars, boats)
❌ Lifestyle inflation (living beyond means)
❌ Speculative investments without clear ROI
❌ If you can’t afford the monthly payments
❌ If your income is unstable or you fear job loss

Part 4: Deep Dive – HECMs (Reverse Mortgages) in 2026

The 2026 HECM Landscape

The HECM program has seen meaningful improvements in 2026, making it more attractive for qualifying seniors. The maximum claim amount rose to $1,249,125 (up from $1,209,750 in 2025), allowing homeowners with higher-value properties to access nearly $40,000 more in equity.

Additionally, interest rate expectations have moderated. With the Federal Reserve having cut rates multiple times in late 2025 and early 2026, HECM interest rates have become more favorable, increasing the principal limits available to borrowers.

How HECMs Work

Unlike traditional mortgages where you make monthly payments to reduce your loan balance, a HECM works in reverse:

Traditional Mortgage:

You borrow money → Make monthly payments → Build equity over time

HECM (Reverse Mortgage):

You tap existing equity → Make no monthly payments → Loan balance grows over time

The loan becomes due when:

You sell the home
You move out permanently (living elsewhere 12+ consecutive months)
You pass away
You fail to maintain property taxes, insurance, or home condition

HECM Payout Options

One of HECM’s strengths is flexibility in how you receive funds:

1. Lump Sum (Fixed Rate)

Receive all available funds at closing
Fixed interest rate
Best for: Paying off existing mortgage, major expenses

2. Line of Credit (Variable Rate)

Draw funds as needed
Unused credit line grows at same rate as loan balance accrues interest
Most popular option (approximately 70% of borrowers choose this)
Best for: Long-term flexibility, building emergency fund

3. Monthly Payments (Variable Rate)

Term payments: Fixed monthly amount for set number of years
Tenure payments: Fixed monthly amount for as long as you live in home
Best for: Supplementing retirement income

4. Combination

Mix of lump sum, line of credit, and monthly payments
Best for: Customized cash flow management

HECM Costs: The Expensive Reality

HECMs are significantly more expensive upfront than HELOCs, which is why they should be viewed as a long-term financial planning tool, not a quick cash solution.

Upfront Costs on a $400,000 Home:

FHA Mortgage Insurance Premium (MIP): 2% of home value
- $8,000 ($400,000 × 0.02)
Origination Fee: Greater of $2,500 or 2% of first $200,000 plus 1% of amount above (capped at $6,000)
- On $400,000 home: $6,000 maximum
Third-Party Closing Costs: $2,000-$4,000
- Appraisal: $500-$700
- Title insurance: $1,000-$1,500
- Recording fees: $200-$400
- Credit report: $50
- Flood certification: $20
- Other misc. fees: $500-$1,000
HUD-Approved Counseling: ~$125

Total Upfront Costs: $16,125-$18,125

Ongoing Costs:

Annual MIP: 0.5% of outstanding loan balance
- On $200,000 balance: $1,000/year (accrues to loan, not paid out-of-pocket)
Interest Accrual: Compounds monthly on outstanding balance
- Example: $200,000 at 5.5% compounds to $268,388 after 5 years with no draws

Critical Point: Most HECM costs can be financed into the loan, meaning you don’t pay them out-of-pocket at closing. However, this reduces your available cash proceeds.

HECM Qualification Requirements

HECMs have more relaxed qualification standards than HELOCs:

✅ Age: 62+ (youngest borrower or eligible non-borrowing spouse)
✅ Occupancy: Must be primary residence
✅ Property Type: Single-family home, 2-4 unit owner-occupied, FHA-approved condo, manufactured home (must meet HUD standards)
✅ Financial Assessment: Ability to pay taxes, insurance, maintenance (not full underwriting)
✅ No minimum credit score: Credit issues don’t disqualify you
✅ No income requirements: Don’t need to prove ability to make monthly payments
✅ HUD Counseling: Must complete HUD-approved counseling session
✅ Existing Mortgage: Must be paid off with HECM proceeds or have very low balance

Financial Assessment: While HECMs don’t require traditional underwriting, the FHA does conduct a financial assessment to ensure you can afford property taxes, insurance, and maintenance. If the assessment reveals concerns, the lender may:

Set aside funds from proceeds for future tax/insurance payments (called a “set-aside”)
Require a co-borrower or additional documentation
In rare cases, deny the application

HECM Advantages

✅ No monthly mortgage payments: Eliminates biggest expense for many seniors
✅ Remain in your home: Live there as long as you maintain taxes/insurance
✅ Non-recourse protection: Never owe more than home’s value (FHA guarantee)
✅ Flexible payout options: Lump sum, line of credit, monthly income, or combination
✅ Line of credit growth: Unused HECM line grows over time
✅ Tax-free proceeds: Money received is not taxable income
✅ Federally insured: FHA backing provides security
✅ No income/credit requirements: Easier to qualify than traditional loans

HECM Disadvantages

❌ High upfront costs: $10,000-$20,000+ in fees
❌ Age 62+ requirement: Not available to younger homeowners
❌ Growing loan balance: Debt compounds over time, reducing equity for heirs
❌ Reduces inheritance: Less equity available for children/heirs
❌ Must maintain property: Failure results in foreclosure
❌ Required counseling: Adds time and cost to process
❌ Complexity: More difficult to understand than traditional products
❌ Risk to heirs: If heirs want to keep home, they must pay off balance

When a HECM Makes Sense

Ideal Use Cases:

✅ Age 62+ with substantial equity but limited retirement income
✅ Eliminating existing mortgage payment to improve cash flow
✅ Supplementing Social Security/pension with monthly payments
✅ Creating emergency fund via line of credit
✅ Delaying Social Security to age 70 (use HECM funds in interim)
✅ Paying for long-term care or medical expenses
✅ Planning to age in place (not moving)
✅ Heirs not dependent on inheriting home equity

Poor Use Cases:

❌ Under age 62 (doesn’t qualify)
❌ Plan to move within 5 years (high costs not recovered)
❌ Can easily afford current mortgage payments
❌ Want to maximize inheritance for children
❌ Have other lower-cost financing options available
❌ Uncomfortable with growing loan balance

Part 5: Deep Dive – HEIs (Home Equity Investments) in 2026

The Rapidly Growing HEI Market

Home Equity Investments emerged around 2015 and have grown dramatically. In 2024, the 10 largest HEI companies signed 11,000 contracts totaling $1.1 billion in volume, according to Consumer Financial Protection Bureau data. Industry observers note that demand for HEI securitizations has “completely exploded,” with over $2.5 billion securitized in 2025.

However, this growth has attracted both investor interest and regulatory scrutiny. The CFPB published a comprehensive “Issue Spotlight” on HEIs in January 2025, and several states (including Massachusetts and Washington) have pursued legal action against HEI providers, questioning whether these products should be regulated as loans.

How HEIs Actually Work

Step 1: Application & Approval You apply with an HEI company, which evaluates your property value, equity position, and other factors. Unlike lenders, many HEI companies don’t require proof of income or credit checks.

Step 2: Property Valuation The company orders an appraisal or uses an automated valuation model (AVM). Critically, many HEI companies use a “risk-adjusted home value”—a discounted version of your home’s actual market value (typically 2-30% below appraised value). This protects the company against market declines.

Example:

Your home appraises at: $500,000
Company’s risk-adjusted value: $450,000 (10% discount)
This lower value determines your maximum investment amount

Step 3: Receive Lump Sum Once approved, you receive a one-time cash payment. Typical amounts range from $15,000 to $600,000, usually capped at 20-25% of your home’s (risk-adjusted) value.

Step 4: No Monthly Payments You make zero monthly payments during the term (typically 10-30 years). The company earns its return when the agreement settles.

Step 5: Settlement Settlement occurs when:

You sell the home
The term expires (10-30 years)
You refinance
You buy out the company’s share

At settlement, you pay the company:

Original investment amount, PLUS
Company’s agreed share of appreciation (or MINUS their share of depreciation)

The True Cost of HEIs: Real-World Scenarios

Understanding what HEIs actually cost requires modeling different home appreciation scenarios.

Scenario Setup:

Home value today: $500,000
HEI investment received: $75,000
Company’s share: 15% of future appreciation
Term: 10 years

Scenario 1: Moderate Appreciation (4% annually)

Home value after 10 years: $740,078
Total appreciation: $240,078
Company’s 15% share: $36,012
You owe at settlement: $111,012 ($75,000 + $36,012)
Effective annual “interest rate”: ~4.0%

Scenario 2: Strong Appreciation (7% annually)

Home value after 10 years: $983,576
Total appreciation: $483,576
Company’s 15% share: $72,536
You owe at settlement: $147,536 ($75,000 + $72,536)
Effective annual “interest rate”: ~7.0%

Scenario 3: Extreme Appreciation (10% annually)

Home value after 10 years: $1,296,871
Total appreciation: $796,871
Company’s 15% share: $119,531
You owe at settlement: $194,531 ($75,000 + $119,531)
Effective annual “interest rate”: ~10.0%

Scenario 4: Home Value Declines (-2% annually)

Home value after 10 years: $409,384
Total depreciation: -$90,616
Company’s 15% share of loss: -$13,592
You owe at settlement: $61,408 ($75,000 – $13,592)
You saved money vs. if home had held value

For Comparison: $75,000 HELOC at 7.5%

10 years interest-only payments: $56,250 in interest paid
Principal payoff: $75,000
Total cost: $131,250

Key Insight: In Scenario 2 (strong appreciation), the HEI costs $147,536—more expensive than the HELOC’s $131,250 despite no monthly payments. Only in declining or flat markets does the HEI potentially cost less.

HEI Costs Beyond the Settlement Amount

Upfront Fees (3-5% of investment):

Origination fee: 3-5% of cash advance
Appraisal: $400-$700
Home inspection: $300-$500
Title insurance: $500-$1,500
Escrow services: $300-$600
Total: $3,000-$15,000 (often deducted from your proceeds)

Example:

Approved for $75,000 investment
4% origination fee: $3,000
Other closing costs: $2,000
Net proceeds you receive: $70,000
But you still owe based on $75,000 investment

HEI Qualification Requirements

HEIs have the most relaxed qualification standards of all three products:

✅ Minimum equity: 20-25% typically required
✅ Credit score: Often no minimum (some accept 500+)
✅ Income verification: Usually not required
✅ Debt-to-income ratio: Not a factor
✅ Age: Any age (18+)
✅ Employment: Not required
✅ Property type: Single-family homes, condos (availability varies)

Why so lenient? Because the HEI company isn’t relying on your ability to make monthly payments—they’re betting on home appreciation.

HEI Advantages

✅ No monthly payments: Zero cash flow burden during term
✅ No income/credit requirements: Accessible to borrowers banks reject
✅ Won’t impact DTI: Doesn’t count as debt for other loan applications
✅ All ages eligible: Unlike HECMs (62+)
✅ Shared downside risk: If home value drops, you owe less
✅ Fast approval: Often 2-4 weeks vs. 30-45 days for traditional loans
✅ Flexible use of funds: No restrictions on how you spend money
✅ Not reported to credit bureaus: Won’t affect credit score

HEI Disadvantages

❌ Extremely expensive in appreciating markets: Can cost 2-4x more than HELOC
❌ Gives up future appreciation: You lose equity upside
❌ Complex terms: Difficult to calculate true cost upfront
❌ Appreciation caps: Some companies cap their gains, then take larger share above cap
❌ Limited availability: Not available in all states
❌ High upfront fees: 3-5% origination plus closing costs
❌ Forced exit: Must settle after 10-30 years even if inconvenient
❌ No tax benefits: Can’t deduct anything (not a loan)
❌ Regulatory uncertainty: Legal challenges ongoing in multiple states
❌ Risk of foreclosure: Failure to settle can result in forced sale

When an HEI Makes Sense

Ideal Use Cases:

✅ Self-employed with irregular income (can’t document for HELOC)
✅ Poor credit (rejected for traditional financing)
✅ Already at maximum DTI (can’t take on more debt)
✅ Expect flat or declining home values (share downside risk)
✅ Short-term need (selling home within 3-5 years anyway)
✅ Absolutely no other financing options available
✅ Emergency situation requiring immediate cash

Poor Use Cases:

❌ Strong appreciation market (will cost far more than loans)
❌ Long-term hold (10+ years of appreciation compounds rapidly)
❌ Can qualify for HELOC or home equity loan
❌ Funding depreciating assets (vacations, cars)
❌ Want to maximize equity for heirs
❌ Uncomfortable with uncertain future cost

Part 6: Making the Right Choice – Decision Framework

Your Personal Situation Matters Most

The “best” product depends entirely on your unique circumstances. Here’s a decision framework:

Question 1: How old are you?

Under 62: HELOC or HEI (HECM not available)
62+: All three options available (consider HECM if eliminating mortgage payment is priority)

Question 2: Can you afford monthly payments?

Yes: HELOC likely best (lowest cost over time)
No: HECM (if 62+) or HEI
Uncertain: Consider no-monthly-payment options (HECM/HEI)

Question 3: What’s your credit score?

700+: Strong HELOC rates available
620-699: HELOC possible but higher rates; consider alternatives
Under 620: HEI or HECM (if 62+)

Question 4: Do you have stable, documented income?

Yes: HELOC accessible
No (self-employed, retirement, irregular): HECM (if 62+) or HEI

Question 5: How long do you plan to stay in the home?

Less than 5 years: HELOC (avoid HECM high upfront costs; HEI settlement may work)
5-15 years: Any option works; run the numbers
15+ years / until death: HECM or HELOC (avoid HEI in appreciating markets)

Question 6: What’s your local real estate market outlook?

Strong appreciation expected: HELOC or HECM (keep upside; don’t share with HEI)
Flat/declining values: HEI becomes more competitive (shares downside)

Question 7: What’s your primary goal?

Eliminate mortgage payment: HECM (if 62+)
Emergency fund/flexibility: HELOC (revolving credit) or HECM line of credit
One-time large expense: Any option; compare costs
Supplement retirement income: HECM tenure payments
Debt consolidation: HELOC (if you can afford payments) or evaluate total costs

Part 7: Real-World Case Studies

Case Study 1: The Working Homeowner (HELOC Winner)

Profile:

Age: 45
Home value: $450,000
Existing mortgage: $250,000 at 3.75%
Equity: $200,000
Credit score: 740
Household income: $125,000
Need: $60,000 for kitchen remodel

Option Analysis:

HELOC:

Available credit: $110,000 (80% CLTV = $360,000 – $250,000)
Rate: 7.25% (Prime + 0.50%)
Monthly payment (interest-only): $363
Upfront costs: $500
Total 10-year cost: $44,060 (interest + costs)

HECM:

Not eligible (under 62)

HEI:

Investment available: ~$60,000
Company share: 15% of appreciation
10-year appreciation at 5% annually: $282,434
Appreciation: $282,434 – $450,000 = -$167,566 (wait, recalculating)
Home value in 10 years: $732,840
Appreciation: $282,840
Company’s 15%: $42,426
Total cost: $102,426 ($60,000 + $42,426)

Winner: HELOC

Saves $58,366 vs. HEI over 10 years
Keeps all future appreciation
Tax-deductible interest (used for home improvement)

F1Lenders Recommendation: Dustin Dumestre would shop this borrower’s HELOC across 70+ wholesale lenders to find Prime + 0.50% (or better) margins, ensuring the lowest possible monthly payment while keeping the low first mortgage rate intact.

Case Study 2: The House-Rich, Cash-Poor Senior (HECM Winner)

Profile:

Age: 72
Home value: $550,000 (owned free and clear)
Monthly income: $2,400 (Social Security + small pension)
Credit score: 630 (some late payments on credit cards)
Need: Eliminate monthly expenses, create emergency fund

Option Analysis:

HELOC:

Would qualify for ~$385,000 credit line (70% CLTV given age)
Rate: 7.75% (Prime + 1.00% due to credit score)
Problem: $2,400 monthly income can’t support even interest-only payments on significant draw
If drawing $100,000: Monthly payment = $646 (27% of income just for HELOC)
Verdict: Debt-to-income too high; likely denial

HECM:

Available principal limit: ~$310,000-$330,000
Upfront costs: ~$18,000 (financed into loan)
Net available: ~$292,000-$312,000
Structure: $50,000 lump sum for immediate needs, remainder in growing line of credit
Monthly payment: $0
Provides emergency fund that grows over time

HEI:

Investment available: ~$110,000 (20% of home value)
Upfront fees: ~$4,400 (4%)
Net proceeds: $105,600
Company share: 20% of appreciation
15-year appreciation at 4%: $550,000 → $991,059
Appreciation: $441,059
Company’s 20%: $88,212
Total cost: $198,212 ($110,000 + $88,212)
Settlement required in 15 years (borrower would be 87)

Winner: HECM

No monthly payment burden
Largest available funds
Line of credit grows over time (unused portion)
Non-recourse protection
Can remain in home for life
Despite high upfront costs, provides best long-term solution

F1Lenders Recommendation: While F1Lenders doesn’t directly originate HECMs (requires specialized licensing), Dustin would refer this client to a trusted HECM specialist while providing comprehensive education on how the product works, ensuring the senior makes an informed decision.

Case Study 3: The Self-Employed Entrepreneur (Complex Scenario)

Profile:

Age: 38
Home value: $600,000
Existing mortgage: $400,000 at 6.75%
Equity: $200,000
Credit score: 680
Self-employed income: $150,000 (actual cash flow), $65,000 (on tax returns after deductions)
Need: $80,000 for business expansion opportunity

Option Analysis:

HELOC (Traditional):

Based on tax return income ($65,000), DTI too high
Existing mortgage payment: $2,591
HELOC payment on $80,000 at 7.5%: $500 (interest-only)
Total housing: $3,091 / $5,417 monthly income = 57% DTI
Verdict: Likely denial from traditional lenders

HELOC (Alternative – Bank Statement Program via F1Lenders):

Some wholesale lenders allow bank statement income calculation
12-month bank deposits average: $14,500/month
Qualified income: ~$145,000 (annualized)
DTI: $3,091 / $12,083 = 26%
Verdict: Approval likely
Rate: 8.0% (slightly higher for bank statement program)
Monthly payment: $533

HECM:

Not eligible (under 62)

HEI:

Investment available: ~$100,000
Upfront fees: ~$4,000
Net proceeds: $96,000
Company share: 18% of appreciation
Business plan: 5-year exit (sell home or buyout HEI)
Projected home value in 5 years (4% appreciation): $730,203
Appreciation: $130,203
Company’s 18%: $23,437
Total cost: $123,437 ($100,000 + $23,437)
Effective 5-year “interest rate”: ~4.3% annually

Winner: HELOC via Bank Statement Program

Lower total cost than HEI over 5 years
Keeps all appreciation upside
Can pay down balance as business generates returns
Revolving line allows re-borrowing if needed

F1Lenders Advantage: This is exactly where Dustin Dumestre and F1Lenders excel. A traditional bank would decline this borrower based on tax returns. But F1Lenders’ access to 70+ wholesale lenders includes those offering bank statement programs specifically designed for self-employed borrowers. By shopping the scenario across multiple specialized lenders, F1Lenders finds approval where banks say no—and at competitive rates.

Case Study 4: The Credit-Challenged Homeowner (HEI Winner – Rare Case)

Profile:

Age: 52
Home value: $400,000
Existing mortgage: $180,000 at 4.25%
Equity: $220,000
Credit score: 580 (recent medical debt collections, bankruptcy 3 years ago)
Income: $75,000 (W-2)
Need: $50,000 for medical expenses and debt consolidation
Market outlook: Flat to declining (Rust Belt city with population loss)

Option Analysis:

HELOC:

Credit score too low for most lenders (620 minimum)
Even subprime HELOC lenders (if available): 10-12% rates
Verdict: Likely denial

HECM:

Not eligible (under 62)

HEI:

Investment available: ~$50,000
Credit score not a factor
Company share: 17% of appreciation
Market forecast: Flat to -1% annually over 10 years
Projected home value in 10 years: $362,283 (assuming -1% annually)
Depreciation: -$37,717
Company’s 17% share of loss: -$6,412
Total cost: $43,588 ($50,000 – $6,412)
Effective cost: -2.7% over 10 years (you saved money)

Winner: HEI (in this specific declining market scenario)

Only option available given credit issues
Shares downside risk in declining market
No monthly payments (important given medical debt burden)
Gets needed funds when banks won’t approve

F1Lenders Approach: Even in challenging credit situations, Dustin Dumestre would first explore:

Non-QM lenders accessible through wholesale channels (some accept 580+ scores)
Credit repair strategies to quickly boost score above 620
Co-borrower options
Waiting 6-12 months while repairing credit

Only after exhausting these options would F1Lenders discuss HEI as a last resort, ensuring the client understands the full cost in different market scenarios.

Part 8: The Hidden Risks – What Companies Don’t Tell You

HELOC Risks

1. Payment Shock at Repayment Period Many borrowers focus only on the low interest-only payment during the draw period, forgetting that payments can double or triple when the repayment period begins.

Example:

$100,000 HELOC at 7.5%
Draw period payment (interest-only): $625/month
Repayment period payment (15-year amortization): $927/month
Payment increase: $302/month (48% jump)

2. Variable Rate Risk If the Federal Reserve raises rates aggressively (as it did in 2022-2023), your HELOC rate can skyrocket.

Historical example:

June 2021: Prime Rate = 3.25%
July 2023: Prime Rate = 8.50%
Increase: 5.25 percentage points in 2 years

On a $100,000 HELOC:

2021 payment at 4.25%: $354/month
2023 payment at 9.50%: $792/month
Increase: $438/month (124% jump)

3. Credit Line Suspension During the 2008 financial crisis, many lenders froze or reduced HELOC credit lines, even for borrowers in good standing. If your home value drops significantly, your lender can reduce your available credit.

HECM Risks

1. Rapidly Growing Balance The compounding effect of interest and mortgage insurance can cause your loan balance to explode over time.

Example:

Initial HECM: $200,000
Interest rate: 5.5%
Annual MIP: 0.5%
Total annual accrual: 6.0%

Balance growth:

Year 5: $267,645
Year 10: $358,170
Year 15: $479,312
Year 20: $641,427
Your $600,000 home now has a $641,427 lien

If home appreciation doesn’t keep pace, heirs may inherit nothing—or even an underwater property (though non-recourse protects them from owing more than home value).

2. Property Charge Defaults Even though you have no mortgage payment, you MUST continue paying:

Property taxes
Homeowners insurance
HOA fees
Maintenance and repairs

Failure to pay these can trigger foreclosure. According to a 2023 HUD Office of Inspector General report, property charge defaults were the primary reason for HECM foreclosures.

3. Permanent Move Triggers Due If you move to a nursing home or assisted living for 12+ consecutive months, the loan becomes due. This can force a sale at an inopportune time.

HEI Risks

1. Appreciation Caps and Escalating Shares Some HEI contracts include complex terms like:

“Company receives 20% of appreciation up to 2.5x the investment, then 40% of appreciation above that”
These clauses dramatically increase costs in strong markets

2. Forced Settlement Timing When the term expires (often 10-30 years), you MUST settle—even if:

The market is down (bad time to sell)
You’re not financially ready to buy them out
You want to stay in your home

3. Valuation Disputes At settlement, determining your home’s value can create conflicts:

Company may use broker price opinion (BPO) rather than full appraisal
BPO values can be 5-10% lower than appraisals
This increases the “appreciation” and therefore what you owe

4. Regulatory Uncertainty Multiple states have pursued legal action against HEI providers:

Massachusetts (2024): Filed lawsuit against HEI company for unfair practices
Washington (2023): Issued cease-and-desist orders

If regulations change dramatically, HEI companies may exit the market, potentially forcing early settlements.

Part 9: Tax Considerations

HELOC Tax Treatment

Interest Deductibility: Under current tax law (Tax Cuts and Jobs Act), HELOC interest is deductible ONLY if you use the funds to “buy, build, or substantially improve” your home.

Deductible uses:

Home renovations, additions, repairs
Buying a second home or investment property (different rules apply)

NOT deductible:

Debt consolidation
Tuition
Car purchases
Vacations
Business expenses (unless home is business location)

Limits:

Combined mortgage + HELOC debt limit for deduction: $750,000 ($375,000 if married filing separately)
Amounts above these limits don’t qualify for interest deduction

Example:

First mortgage: $600,000
HELOC: $200,000
Total: $800,000
Deductible debt: $750,000
Non-deductible portion: $50,000
Only 93.75% of HELOC interest is deductible

HECM Tax Treatment

Interest Deductibility: HECM interest is deductible when paid—but since you’re not making payments, you typically can’t deduct it until:

You sell the home, or
Heirs pay off the loan

At that point, all accrued interest becomes deductible (subject to limits), potentially creating a large deduction in the year of settlement.

Example:

HECM balance at settlement: $400,000
Original amount borrowed: $200,000
Accrued interest: $200,000
Potential deduction: $200,000 in year of sale (subject to AGI limitations)

Note: This typically benefits heirs more than the original borrower.

HEI Tax Treatment

The IRS Question: HEIs create tax uncertainty because they’re structured as investments, not loans.

Current interpretation:

Money received is NOT taxable income (it’s a contract, not income)
Amount paid back is NOT deductible (it’s a contract settlement, not interest)
Capital gains may be affected (complex calculation involving basis adjustment)

Capital Gains Complication: When you sell your home:

You may owe capital gains on the HEI company’s portion
Your cost basis may be reduced by the original HEI investment
Consult a tax professional—this area is unsettled

Example (simplified):

Original purchase price: $300,000
HEI received 10 years ago: $50,000
Sale price: $700,000
Traditional gain: $400,000
Under HEI: Basis may be $250,000 ($300,000 – $50,000)
Calculated gain: $450,000
You might pay capital gains on $450,000 instead of $400,000
Difference: $50,000 × 15% (capital gains rate) = $7,500 extra tax

Critical: Always consult a tax professional before entering an HEI. The tax treatment is not fully settled and varies by circumstance.

Part 10: How F1Lenders Can Help

The F1Lenders Difference

Choosing between HELOCs, HECMs, and HEIs requires expertise that goes far beyond product knowledge. It requires understanding your complete financial picture, access to the full range of wholesale lending options, and the ability to model different scenarios to find the optimal solution.

Here’s how Dustin Dumestre and the F1Lenders team approach home equity decisions:

1. Comprehensive Financial Analysis

We don’t start with products—we start with you:

What’s your current financial situation?
What are your short-term needs and long-term goals?
How long do you plan to stay in the home?
What’s your risk tolerance?
How important is preserving equity for heirs?
What’s your local real estate market outlook?

This discovery process often reveals that the product you thought you needed isn’t actually the best fit.

2. Access to 70+ Wholesale Lenders

HELOCs aren’t one-size-fits-all. Different wholesale lenders offer:

Different margins: Prime + 0.50% vs. Prime + 1.50% = $100/month difference on $120,000 credit line
Different LTV limits: Some allow 90% CLTV, others cap at 80%
Specialized programs: Bank statement HELOCs for self-employed, investor property HELOCs, interest-only extended terms
Various fee structures: $0 closing costs vs. standard fees

F1Lenders shops your scenario across our entire wholesale network to find the lender offering:

Lowest margin for your credit profile
Highest credit limit for your equity position
Best terms for your specific situation

This is something a bank loan officer cannot do. They’re limited to one institution’s products.

3. Transparent Cost Comparisons

We model all three options (HELOC, HECM referral, HEI) across multiple scenarios:

Example analysis we’d provide:

Scenario	HELOC Total Cost	HECM Total Cost	HEI Total Cost	Winner
5-year hold, 4% appreciation	$22,500	$48,000	$45,200	HELOC
10-year hold, 6% appreciation	$52,000	$92,000	$98,500	HELOC
10-year hold, flat market	$52,000	$92,000	$68,000	HEI
20-year hold, 5% appreciation	$115,000	$185,000	N/A (term expired)	HELOC

This transparency allows you to make an informed decision based on data, not sales pressure.

4. HECM Education and Referrals

While F1Lenders doesn’t directly originate HECMs (they require specialized licensing), Dustin maintains relationships with reputable HECM specialists and provides comprehensive education:

How HECMs actually work (beyond the marketing)
True costs over different timelines
When HECMs make sense vs. other options
Questions to ask HECM loan officers
Red flags to watch for

We ensure you understand what you’re signing before referring you to a trusted specialist.

5. HEI Reality Checks

If you’re considering an HEI, F1Lenders will:

✓ Calculate what you’ll actually owe in various appreciation scenarios
✓ Compare HEI costs vs. HELOC costs in your specific market
✓ Explain why most HEIs are dramatically more expensive than loans
✓ Explore alternative financing options first
✓ Only support HEI decisions when truly no better option exists

We don’t earn commissions from HEI companies, so we have zero incentive to push you toward expensive products.

6. Multi-State Licensing Advantage

Whether you’re tapping equity in your:

Primary residence in Utah
Vacation home in Florida
Investment property in Tennessee

Dustin’s multi-state licensing means one advisor who knows your full financial picture can help you access the best wholesale lenders in each market.

7. Ongoing Support and Strategy

Home equity decisions aren’t one-and-done. F1Lenders provides:

Annual reviews of your HELOC rate vs. market rates
Refinance alerts when better options emerge
Equity tracking as your home appreciates
Strategy adjustments as your financial situation evolves

We’re your long-term partner, not a one-time transaction.

Part 11: Common Mistakes to Avoid

Mistake 1: Not Shopping Around

The Error: Accepting your bank’s HELOC offer without comparison shopping.

The Cost: Bank offers Prime + 1.25%; wholesale lenders offer Prime + 0.50%

On $100,000 HELOC: $75/month difference = $9,000 over 10 years

F1Lenders Solution: We automatically shop 70+ lenders for you.

Mistake 2: Choosing Based on Monthly Payment Alone

The Error: Selecting HEI or HECM because “no monthly payment” sounds appealing without calculating total cost.

The Reality:

No monthly payment ≠ No cost
HEI with no payment: $147,000 total cost
HELOC with $625/month payment: $131,000 total cost
“Free” payment option costs $16,000 more

F1Lenders Solution: We model total cost over your expected timeline.

Mistake 3: Tapping Equity for Depreciating Assets

The Error: Using HELOC to buy boats, cars, vacations.

The Problem:

You’re paying 7.5% to finance a depreciating asset
You’ve converted unsecured debt (could discharge in bankruptcy) into secured debt (lose home if you can’t pay)

F1Lenders Approach: We discuss intended use and flag poor uses.

Mistake 4: Not Understanding Variable Rate Risk

The Error: Assuming today’s 7.3% HELOC rate will stay 7.3% for 10 years.

Historical Reality:

2021: 4.25%
2023: 9.50%
Change: 5.25 percentage points in 2 years

F1Lenders Solution: We stress-test your budget at Prime + 3% above current rate.

Mistake 5: Ignoring the HECM Line of Credit Growth Feature

The Error: Taking HECM as lump sum instead of line of credit when you don’t need all funds immediately.

What You Miss:

HECM line of credit grows at same rate as loan accrues interest
Example: $200,000 unused line at 5.5% becomes $267,000 in 5 years
You gained $67,000 in borrowing power just by waiting

F1Lenders Education: We explain this critical feature most seniors don’t know about.

Mistake 6: Accepting HEI Without Modeling Appreciation

The Error: Receiving $75,000 HEI, not calculating what you’ll owe in strong market.

Surprise 10 Years Later:

Home appreciated 7% annually
You owe $147,000
HELOC would have cost $131,000
You overpaid by $16,000

F1Lenders Solution: We run appreciation models at 3%, 5%, 7% and show you what you’d owe in each scenario.

Part 12: Frequently Asked Questions

Q: Can I have both a HELOC and a HECM? A: No. HECMs must be the only lien on the property (besides property tax liens). You’d need to pay off the HELOC before getting a HECM, or use HECM proceeds to pay off the HELOC.

Q: Can I pay off an HEI early? A: Yes, but you’ll still owe the company’s share of appreciation based on current market value. There’s typically no prepayment penalty, but you don’t save on appreciation share by paying early.

Q: What happens to my HELOC when I sell my home? A: You must pay off the HELOC balance at closing, just like your primary mortgage. The balance is deducted from your proceeds.

Q: Can my heirs keep the home after I die with a HECM? A: Yes. Heirs can:

Pay off the loan balance (95% of appraised value or full balance, whichever is less)
Refinance the HECM into a traditional mortgage
Sell the home and keep any remaining equity

Q: Are HELOCs assumable? A: No. HELOCs are tied to the original borrower. When the home sells or ownership transfers, the HELOC must be paid off.

Q: Can I get a HELOC on an investment property? A: Yes, but rates are typically 0.50-1.00% higher than owner-occupied HELOCs, and LTV limits are lower (70-75% instead of 80-90%).

Q: What’s the difference between a HELOC and a home equity loan? A:

HELOC: Revolving line of credit, variable rate, borrow and repay multiple times
Home Equity Loan: One-time lump sum, fixed rate, fixed monthly payment, closed-end loan

Q: Do I pay taxes on HELOC, HECM, or HEI proceeds? A: No. None of these products create taxable income when you receive the money. However, interest deductibility and capital gains implications differ (see Part 9: Tax Considerations).

Q: Can I convert my HELOC to a fixed-rate loan? A: Some lenders allow you to “lock” portions of your HELOC balance into fixed-rate loans. Ask your lender about this option. F1Lenders can also help you refinance HELOC debt into a fixed-rate home equity loan if rates have risen dramatically.

Q: What credit score do I need for a HELOC? A: Minimum 620-680 for most lenders. Best rates require 740+. F1Lenders has access to wholesale lenders with varying credit requirements.

Part 13: The Bottom Line – Your Next Steps

Tapping into your home equity is one of the most significant financial decisions you’ll make. The difference between choosing the right product and the wrong product can mean tens of thousands of dollars over the life of the agreement.

The Quick Summary

Choose a HELOC when:

✅ You’re under 62 (HECM not available)
✅ You can afford monthly payments
✅ You have good credit (680+) and stable income
✅ You want to preserve all future appreciation
✅ You need flexibility to borrow/repay/reborrow
✅ Total cost matters more than monthly cash flow

Choose a HECM when:

✅ You’re 62+ years old
✅ You need to eliminate mortgage payment
✅ You have limited retirement income
✅ You plan to age in place (10+ years)
✅ You want payment flexibility (lump sum, line of credit, or monthly income)
✅ Heirs aren’t dependent on inheriting home equity

Choose an HEI when:

✅ You’ve been declined for traditional financing
✅ You have poor credit (<620)
✅ You’re self-employed and can’t document income
✅ Your local market is flat or declining (share downside risk)
✅ You need funds but absolutely cannot afford monthly payments
✅ You plan to sell within 3-5 years anyway
✅ You’ve exhausted all other options

Work with F1Lenders for Expert Guidance

Don’t navigate these complex decisions alone. Dustin Dumestre and the F1Lenders team provide:

✓ Comprehensive financial analysis of your specific situation
✓ Access to 70+ wholesale lenders for optimal HELOC rates and terms
✓ Transparent cost modeling across all three product types
✓ Education and referrals for HECMs when appropriate
✓ Reality checks on HEIs to ensure you’re not overpaying
✓ Multi-state licensing for properties across multiple markets
✓ Ongoing partnership as your financial situation evolves

Book Your Free Home Equity Strategy Session

Let’s demystify your options and find the solution that maximizes your financial outcome.

During your session, we’ll:

Review your current equity position and financial goals
Compare HELOC options across our wholesale lender network
Model total costs for HELOC, HECM, and HEI scenarios
Provide referrals for HECMs if you’re 62+ and that’s the best fit
Answer all your questions with zero sales pressure

Schedule Your Free Strategy Session →

Your home equity is a powerful financial tool—but only if you access it the right way. Let F1Lenders help you make the decision that’s right for your future.

Data sources: Federal Reserve, Bankrate, Curinos, Consumer Financial Protection Bureau (CFPB), Department of Housing and Urban Development (HUD), National Reverse Mortgage Lenders Association (NRMLA), Federal Housing Administration (FHA), Urban Institute, Freddie Mac, Fannie Mae, and industry reports from HEI providers including Hometap, Point, and Unison. All cost examples are illustrative and based on current market conditions as of February 2026. Individual results will vary based on creditworthiness, property characteristics, and lender-specific terms. This content is for educational purposes and should not be considered financial, legal, or tax advice. Consult with qualified professionals before making home equity decisions.

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