Using Home Equity for a Private Credit Investment
Private credit has grown rapidly on the strength of yields well above public bonds. The yield is compensation for real risks: borrowers who could not access cheaper capital, limited liquidity, and loss patterns that stay benign for years and then arrive together when conditions turn.
Why homeowners use equity for this
- Yields are typically well above public fixed income, reflecting the additional risk taken.
- Most vehicles are illiquid or offer only limited periodic redemption.
- Credit losses are cyclical — long benign periods are not evidence of low risk.
How an equity agreement differs from a loan
A home equity agreement is not a loan. There is no interest rate and no monthly payment. You receive a lump sum today, and in exchange the investor receives a share of your home’s value when the agreement ends — usually when you sell, refinance, or reach the end of the term.
That structure is what makes it suit make a private credit investment: the money arrives when it is needed, and nothing is added to your monthly outgoings in the period before it starts paying off. It also means the agreement has to be settled in full at the end, and that the share you give up grows if your home does. Both facts deserve equal weight before you sign anything.
Who else is usually involved
Decisions like this are rarely made alone. Private credit sponsors and advisors are typically part of the conversation — management fees and spread. If you are already working with someone, we can work alongside them.
Questions people ask
What is private credit?
Lending to companies outside the public bond market, usually by funds. Borrowers pay more than they would publicly, often because of size, complexity, or credit quality. Investors receive that higher yield and take the corresponding risk.
How liquid is it?
Generally not. Closed-end funds lock capital for the term. Interval and non-traded vehicles offer limited periodic redemption, which can be restricted precisely when many investors want out at once. Treat it as illiquid regardless of what the redemption policy says.
What should I examine?
Underwriting standards, loan-to-value and covenant quality, sector and borrower concentration, whether the fund uses leverage, the manager's loss history through a genuine credit cycle, and how loans are valued when they stop performing.
Is the yield worth the risk?
It depends on the manager and on where you are in the cycle. A yield premium that looks generous during an expansion can be inadequate compensation once defaults arrive. Assume losses will happen and ask whether the yield still justifies it.