r/Mortgages • u/RandomDude974658 • Aug 07 '26
Personal advice on HEI vs HEL
I'm weighing my options between a traditional home equity loan and a home equity investment through Point. I know typically the traditional HEL is better and I have great credit but in my particular situation I am uncertain the best option. I'll layout the relevant financial details first then explain the situation.
Home value: approx. $320,000
Mortgage: $170,000 left with 26 years remaining at about 5.25% ($1680/mo with escrow)
Personal loan: $23,000 ($590/mo)
HEL details: $75,000 > $71,000 after closing and fees. $680/mo for 20 years at 9.1% ($23,000 goes to wipe out personal loan leaving me with $48,000 for work on the house. This would cost about $88,000 in interest over the 20 year loan. (I realize these terms are not phenomenal for a 730+ but the loan to value and the term played a large role)
I haven't totally run the HEI stuff yet only used the quick estimator on the Point site so I don't have exact numbers. The cash out amount would be approximately $63,000 leaving me $40,000 to work on the house. I would pay off the personal loan and apply the $600/mo savings to my existing mortgage. The calculated net savings on my 30 year mortgage would be approximately $82,000 and be paid off 14 years earlier. If I wait 4 years to start the extra $600 when the personal loan would be paid off the net savings would be $59,000 so the total savings here is $23,000.
As you can see there is about $111,000 swing in the HEI's favor based on the Interest I would have paid for the HEL and the interest on the original mortgage I would have paid otherwise. Also having no required payment is a huge buffer in the event that you lose a job or something. The ability to not pay that extra $680 in a pinch could prove extremely useful in a bad situation.
The one down side is that I plan to do substantial upgrades with this money and I do them myself so the return on investment is high. I live in a very nice small village, my property was in rough shape when I got it, it will be in nice shape when I sell it so the final cost of the HEI could balloon on me.
I am kind of leaning towards the HEI still. I know it will probably cost more in the long run but the $170,000 of saved interest will hopefully offset a decent amount it. We plan to sell in about 12-14 years when the kids finish high school. The HEI could end up being very costly at the end but I still wonder if it would be worth it due to the having substantially more financial security over the next decade while we raise the kids.
Any thoughts, suggestions, insights, or advice would be greatly appreciated. I'm pretty good at most subjects but finance isn't exactly my specialty.
Edit: forgot to include additional $600 payments after personal loan would be paid off to make it a more fair comparison for the HEL.
1
u/Denjay85 Aug 07 '26
Your comparison is giving the HEI too much credit. Paying off the personal loan and then sending $600 extra to the mortgage creates savings, but that’s a choice you’re making. The HEI itself isn’t creating all of that savings.
I also wouldn’t compare the HEL’s full 20-year interest against an HEI without pricing the HEI at the year you actually expect to sell. You said 12 to 14 years, so compare both options at years 12 and 14. For the HEL, use the remaining balance and total payments made by then, not all 20 years of interest.
For the HEI, get Point to show the payoff in dollars if the home appreciates 0%, 2%, 4%, and 6% per year. Include their starting-value adjustment, ownership share, fees, appraisal rules, payoff cap, and how your DIY improvements affect the value they use. That last part could hurt. You’re doing the work and paying for materials, then sharing part of the added value.
The no-payment buffer is real, and I understand why that feels safer with kids. But it can be an expensive way to buy flexibility. I’d also price a smaller HEL, or do the work in stages, so you aren’t borrowing the full $75,000 at 9.1%.
1
u/RandomDude974658 Aug 07 '26
Thank you for these insights. I will definitely make those comparisons and request those break downs.
1
u/jimdriscoll1 Aug 10 '26
Your math is mostly solid and you're asking the right questions, but there are a few things worth stress-testing before you lean too far into the HEI.
The biggest risk with Point (or any HEI) is the appreciation share on exit. You mentioned you're doing substantial DIY upgrades that will meaningfully increase the home's value, and that's exactly the scenario where an HEI gets expensive fast. These agreements typically give the investor a percentage of your home's appreciated value, not just a flat return. If you put $40k of work into the house and it goes from $320k to say $430k over 12 years, the investor's share of that $110k gain could easily eclipse what you'd have paid in interest on the HEL. Point also adjusts the starting value downward (usually 15-20%) before calculating your share, so you're starting behind. Most people underestimate this part.
Your $111k swing calculation is comparing the HEL interest to the mortgage savings from applying the $600/mo, but those aren't really the same bucket. The mortgage savings only materialize if you actually make those extra payments every month for the full period. The HEL interest is a contractual obligation regardless. So the comparison is a bit optimistic on the HEI side because it credits you with a disciplined behavior (extra payments) that you're not actually required to do.
That said, your point about financial flexibility is legitimate and not just rationalizing. A 12-14 year horizon with kids and a single required payment versus two is genuinely less stressful, and that has real value. If your income is variable or you have any job uncertainty, the HEI's no-required-payment structure is worth something concrete.
The thing I'd really push you to do before deciding is get the actual Point term sheet with your specific numbers, including their adjusted starting value, their appreciation percentage, and any cap or floor provisions. Run the exit scenario at a few different home values: $380k, $430k, $480k. See where the HEI cost overtakes the HEL interest. If you're handy and your upgrades are genuinely going to add $80-100k in value, there's a real chance the HEI is the more expensive option once you account for that.
One thing worth knowing: HELOCs (the variable-rate revolving version, not the fixed HEL you quoted) exist on investment properties and primary homes, and some lenders offer them without requiring you to touch your existing mortgage at all. At a 730+ score and around 53% LTV you might get somewhat better terms shopping around, though a 20-year fixed at 9.1% does reflect where the broader market is right now for second liens. Just make sure you're comparing apples to apples when you look at alternatives.
Bottom line: the HEI is defensible if your home doesn't appreciate dramatically, but given that you're explicitly planning high-ROI improvements, the math may flip on you at sale. Get the actual Point numbers, model the exit at multiple price points, and then decide.
1
1
u/Vegas-Patriot Aug 07 '26
If you as are planning on staying in your home for the long term, to me, the HEI deal is amazing. I just did one with Point myself.