Reverse Mortgage vs. Home Equity Loan or HELOC: Which Should You Choose?
If you’re 62 or older and want to tap your home equity, you may be comparing a reverse mortgage with a home equity loan or home equity line of credit (HELOC). All three let you borrow against your equity, but reverse mortgages don’t require you to make monthly payments, while home equity loans and HELOCs do.
The best choice for you depends on your financial goals, credit profile, income and how long you plan to stay in your home. We’ll take you through an in-depth comparison of our contenders: reverse mortgage, versus home equity loan, versus HELOC.
Overview: Reverse mortgage vs. home equity loan vs. HELOC
| Reverse mortgage (HECM)* | Home equity loan | HELOC | |
|---|---|---|---|
| Age requirement | 62 or older | None | None |
| How you receive the funds | Monthly payouts, a lump sum or a credit line | One lump sum | Use the funds as needed by swiping a card |
| Monthly payment | No monthly payment required | Fixed monthly payments | Monthly payments vary based on the outstanding balance and variable interest rate |
| Interest rate type | Fixed or variable, depending on the payout option you choose | Fixed | Variable |
| Minimum credit score | No minimum credit score | 620 to 680 | 620 to 680 |
| Minimum equity | 50% | 15% | 15% |
| Ongoing fees and costs | Mortgage insurance premium equal to 0.5% of the outstanding mortgage balance | None | May have:
|
| Cost competitiveness | $$$ | $ | $$ |
Reverse mortgage
What it is: A reverse mortgage is a unique type of home equity product available to homeowners ages 62 or older who own their home outright, or have a fairly low mortgage balance. Instead of making monthly payments to a lender as with a traditional mortgage, reverse mortgage borrowers receive payouts secured by their home equity.
How it works: Borrowers don’t have to repay the loan as long as they live in the home. During this time, interest and fees accumulate, adding to the loan balance. The loan comes due when the borrower no longer lives in the home, sells it or dies. In most cases, the borrower — or their heirs — sell the property to pay off the loan.
Costs and fees: Up to $6,000 in lender fees may be required at closing, plus 2% of the loan amount for upfront mortgage insurance fees. Ongoing fees include 0.5% of the loan amount in annual mortgage insurance premiums.
Find out more about the many rules that come with a reverse mortgage.
How much money can I get from a reverse mortgage?
The amount of money you’ll receive depends on your circumstances and the terms of your reverse mortgage. For example, if you’re younger and the sole titleholder, you’ll receive a smaller payout. A 72-year-old homeowner owning a $400,000 home outright might get a $197,312 lump sum — but a 62-year-old borrower in the same situation would receive only a $176,360 lump sum.
The payment option you select can also affect your loan amount. In many cases, you may receive more with a monthly payment or credit line option than a lump-sum payout.
A reverse mortgage calculator like the one below can estimate your payout, but a HUD-approved HECM counselor and reputable reverse mortgage lenders can provide more accurate figures based on your financial situation.
Home equity loan
What it is: A home equity loan is another option for borrowing against home equity. Borrowers take out a lump sum secured by their home equity, and repay the loan in fixed monthly installments over a set term.
How it works: To qualify for a home equity loan, borrowers must have enough equity in their house to cover the loan’s payout while still maintaining 15% equity. Typically, home equity loan rates are fixed, and loan terms range from five to 30 years.
Costs and fees: 2% to 5% of the loan amount in closing costs, but typically no ongoing fees.
Home equity loans and HELOCs are sometimes called second mortgages because they’re secured by your home and, in many cases, borrowers take them out while still repaying a primary home loan. In the event of foreclosure, a second mortgage is second in line to be repaid, behind your primary home loan. This makes them slightly more risky for lenders and, as a result, slightly more expensive for borrowers.
Home equity line of credit
What it is: A HELOC is similar to a home equity loan in that it’s also a second mortgage, and borrowers can use HELOC funds for any purpose. Because they’re so similar, HELOCs and home equity loans typically come with the same credit, debt-to-income (DTI) ratio and loan-to-value (LTV) ratio requirements.
How it works: A HELOC allows the borrower to use the loan proceeds as needed — much like they would a credit card — during a set time frame called the “draw period.” During this time, which typically lasts 10 years, borrowers can usually make low, interest-only payments. However, once the draw period ends, they’ll enter the repayment period. This is when payments can shoot up hastily, since borrowers must begin making full principal-and-interest payments at a variable interest rate. The repayment period typically lasts between 15 and 20 years.
Costs and fees: You can expect to pay 2% to 5% of the loan amount in closing costs. Many lenders also charge an annual fee and transaction fees, inactivity fees, early termination fees and minimum withdrawal fees — and all of these fees can add up quickly if you’re not careful.
6 factors to consider when comparing reverse mortgages, home equity loans and HELOCs
1. Your age
Besides determining which loan options are available to you, your age will also affect the amount you can borrow. Generally, with a HECM reverse mortgage, the older you are, the more money you can access — taking the loan out too early could mean running out of money later.
2. The amount available to you
You can use a home equity loan and HELOC calculator to find out how much you can access with a HELOC or home equity loan, and then compare that to how much you can get with a reverse mortgage. The most anyone can borrow with a HECM in 2026 is $1,249,125, but that doesn’t necessarily mean you can borrow that much — the limit that applies to you depends on your age and home value.
3. Timeline
How quickly do you need the funds? If you’re looking for the fastest closing possible, a HELOC is going to be your best bet and can close in as little as five days. A home equity loan likely won’t take much longer, but a reverse mortgage will — usually 30 to 45 days.
4. Impact on your spouse
Be sure to consider the implications of a reverse mortgage for your spouse, who likely wants to remain in the home if you die first. With an HECM, an eligible non-borrowing spouse may be able to live in the home after you die or move out, provided they keep up with insurance, taxes and maintenance. However, they won’t continue to receive reverse loan payments — if you’d like that to be an option, you’ll have to make them a co-borrower. The effects of your death on someone who lives with you, but isn’t your spouse or heir, are different: they will most likely have to move out.
5. Loan costs
You’ll want to compare the upfront and ongoing fees of each option. For example, any loan may have an origination fee, closing costs and interest charges. But reverse mortgages also have an upfront mortgage insurance premium (UFMIP) and ongoing mortgage insurance and service fees. Meanwhile, HELOCs may have transaction fees, annual fees or even inactivity fees that kick in if you don’t use enough of your credit, or don’t use it often enough.
6. Tax benefits
How you plan to use the proceeds of an equity-based loan can help determine which loan type is best for you. For instance, the mortgage interest will be tax-deductible if you use a home equity loan or HELOC for home improvements, but that’s not the case with a reverse mortgage.
Which option is best for me?
A reverse mortgage is best if:
- You’re at least 62 years old and own your home outright or have significant equity. A reverse mortgage is only an option if you’re 62 or older and have a low mortgage balance.
- You’re looking for a long-term or ongoing income source. With flexible payout options, a HECM can provide continuous income.
- You’re looking to supplement your income but don’t want payments. You can tap into your home equity through a reverse mortgage without monthly payments.
- You don’t plan to pass your home to heirs, or they’re able to buy or sell your home. In many cases, homeowners (or their heirs) sell the home to satisfy a reverse mortgage when it’s due. If you aren’t planning to include your home in your estate, a reverse mortgage may work for you.
- You’re looking to age in place. A reverse mortgage can provide a way for you to remain in your home and maintain your lifestyle as you get older.
- You understand the loan costs and fees. HECMs are the most expensive home loans on the market. The fees and costs may well be worth it, especially if your goal is to remain in your home as you age, but make sure you go into that trade-off with your eyes open.
A home equity loan is best if:
- You’re under 62 or don’t have enough equity for a reverse mortgage. If you don’t qualify for a reverse mortgage, a home equity loan can provide access to your equity.
- You need funds over a short time period, not continuously. A home equity loan may work if you’re looking to access the full loan amount now, rather than looking for an ongoing income source.
- You have a stable income and can afford the payments. A home equity loan may be a good option if you have reliable income that can support a second mortgage payment.
- You’re accessing your equity for home improvement and want the tax benefit. The interest you pay on a home equity loan or HELOC is tax-deductible when using the loan proceeds for home improvement.
A HELOC is best if:
- You’re under 62 and want access to home equity. As with a home equity loan, a HELOC can turn your home equity into cash if you don’t qualify for a reverse mortgage.
- You want to access the funds as needed. You can tap into your equity as needed — as well as pay back and then reuse the credit line — as many times as you’d like during the draw period. A HELOC may have fewer fees, since you won’t have to close on a new loan if you want to borrow more — you just pay off and reuse the funds.
- You can handle variable payments. Unlike a home equity loan, HELOC payments change based on how much you borrow and market fluctuations.
- You don’t plan to remain in your home. If you know you won’t be in your home long term, a HELOC will be a better option than a reverse mortgage.
- You have a high credit score. Your credit score will help determine your home equity loan or HELOC interest rate. You stand to get a competitive rate if you have a good credit score.
How to get a reverse mortgage
1. Attend a housing counseling session
The first step to getting a HECM loan is to meet with a HUD-approved housing counselor. During the counseling session, you’ll receive detailed information about HECMs, including their eligibility requirements and financial implications, so you can make an informed decision. You can search for a HUD-approved housing counselor using this online search tool.
2. Compare reverse mortgage lenders
Like with any major financial decision, it’s a good idea to compare several different reverse mortgage lenders to ensure you get the best deal. When comparing lenders, pay attention to each company’s loan terms, interest rates and fees. Be sure to review the list of FHA-approved reverse mortgage lenders.
3. Choose a lender and apply
Once you’ve chosen a reverse mortgage lender, the next step is to fill out a loan application. Be prepared to provide information about your financial situation, including your income and assets. You’ll also need to provide details about your property and any co-borrowers.
4. Close on the loan
Closing on a reverse mortgage loan will follow a process similar to that of a traditional mortgage. You’ll need to pay closing costs, which may include the following:
- Appraisal fee
- Inspection fee
- Title search fee
- Credit check fee
- Recording fee
- FHA mortgage insurance
Frequently asked questions
The most common type of reverse mortgage is the home equity conversion mortgage (HECM), insured by the federal government. Other reverse mortgage types include single-purpose reverse mortgages — smaller loans for home improvement or other specified uses — and proprietary reverse mortgages — loans financed by private lenders.
Typically, no, you don’t have to pay taxes on the money you receive from a reverse mortgage.
No, a reverse mortgage shouldn’t affect your Social Security or Medicare benefits. But if you’re unsure about how a new loan might affect other benefits you receive, it’s best to talk to a housing counselor or reach out to the agency administering those benefits.
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