HELOC vs HEI: Which Is Right for You?

Homeowners in Los Angeles and across the country are sitting on record amounts of equity. If you need cash for home renovations, business expansion, or debt consolidation, tapping into that equity is often the smartest move. But how you do it matters. Two popular options are the Home Equity Line of Credit (HELOC) and the Home Equity Investment (HEI).

While they both provide access to cash, they work in fundamentally different ways. Here is a breakdown to help you decide which is best for your situation.

What is a HELOC?

A HELOC works like a credit card secured by your home. You are given a credit limit based on your equity, and you can draw from it as needed. You pay interest only on the amount you borrow.

Pros of a HELOC:

• Flexibility: Borrow and repay as needed.
• Low Rates: Generally lower than personal loans or credit cards.
• Control: You retain 100% of your home's future appreciation.

Cons of a HELOC:

• Monthly Payments: You must make interest (and eventually principal) payments every month.
• Credit Requirements: Typically requires good credit (680+) and verifiable income (DTI ratios matter).
• Variable Rates: Most HELOCs have variable interest rates that can rise.

What is an HEI (Home Equity Investment)?

An HEI is not a loan. It is an investment. An investor gives you a lump sum of cash today in exchange for a percentage of your home's future appreciation. There are no monthly payments.

Pros of an HEI:

• No Monthly Payments: Perfect if cash flow is tight. You pay nothing for up to 30 years.
• Easier Qualification: Approval is based on the property value, not your income or credit score (scores as low as 500 can qualify).
• No Interest: Since it's not a loan, there is no interest rate.

Cons of an HEI:

• Shared Appreciation: You give up a portion of your home's future value. If your home value skyrockets, the investor shares in that gain.
• Lump Sum Repayment: You must repay the original amount plus the appreciation share when the term ends or you sell.

Which Should You Choose?

Choose a HELOC if: You have steady income, good credit, and want to keep all future appreciation of your home.

Choose an HEI if: You are self-employed with variable income, have less-than-perfect credit, or simply don't want another monthly bill.

At PMF LA, we offer both products because we know every homeowner's situation is unique.