Key Takeaways
- Reverse mortgages require no monthly payments, making them appealing for retirees on fixed incomes. HELOCs require payments but typically cost less and preserve more equity.
- A reverse mortgage may be best if you’re 62+ and plan to stay long term. A HELOC may be better if you have steady income and need flexible, short-term funds.
- Both use your home as collateral, so weigh payment flexibility against long-term equity before choosing.
Tapping into your home equity can make retirement more comfortable, but choosing the wrong option could strain your finances instead of helping them. For homeowners 62 and older, the decision often comes down to two choices: a reverse mortgage or a HELOC.
The core difference is simple but significant. A reverse mortgage eliminates monthly loan payments entirely, while a HELOC requires them. This article breaks down how each option works, who qualifies, and which one makes more sense based on your income, goals, and plans for staying in your home.
In this article (Skip to...)
- Reverse mortgage vs HELOC comparison
- Pros and cons of reverse mortgages
- Pros and cons of HELOCs
- Reverse mortgage eligibility requirements
- HELOC eligibility requirements
- How to choose between a reverse mortgage and a HELOC
- Alternatives to a reverse mortgage or HELOC
- FAQ
Reverse mortgage vs HELOC comparison
Seeing the differences side by side can help clarify which option fits your situation.
| Feature | Reverse Mortgage (HECM) | HELOC |
| Age requirement | 62 or older | No minimum |
| Monthly payments | None required | Required |
| Interest rates | Higher, often with fixed options | Lower, usually variable |
| Upfront costs | Higher | Lower |
| How you get funds | Lump sum, monthly, or credit line | Revolving credit line |
| When repayment is due | Sale, move-out, or death | Set repayment period |
| Effect on equity | Decreases over time | Can be preserved |
Age and eligibility
With a reverse mortgage, everyone on the loan has to be at least 62. Lenders focus on your age, how much equity you have, and whether you can keep up with taxes and insurance. HELOCs don’t have an age minimum, but lenders will want to see steady income, which can be a hurdle if you’re retired.
Monthly payment requirements
This is really the heart of the decision. A reverse mortgage means no monthly loan payment, period. A HELOC requires payments from the start. If adding another monthly bill would stretch your budget too thin, a reverse mortgage removes that pressure entirely.
Interest rates and fees
HELOCs generally come with lower interest rates, though those rates can change. Reverse mortgages tend to have higher rates plus significant upfront costs like mortgage insurance. The tradeoff? You don’t pay those costs out of pocket right away. They’re rolled into the loan and settled later.
How funds are disbursed
A HELOC gives you a revolving credit line to draw from as needed. A reverse mortgage offers more choices: take it all at once, receive fixed monthly payments, or set up a credit line. One unique feature of the reverse mortgage credit line is that the unused portion actually grows over time, giving you more borrowing power down the road.
Repayment terms
HELOCs follow a predictable schedule with a draw period followed by a repayment period. Reverse mortgages don’t have a set timeline. Instead, the loan comes due when you sell, move out for more than 12 months, or pass away.
Impact on home equity and ownership
You keep ownership with both options. The difference is what happens to your equity over time. With a HELOC, making payments can help you maintain or rebuild equity. With a reverse mortgage, the balance grows and your equity typically shrinks because you’re not making payments.
What is a reverse mortgage?
A reverse mortgage lets homeowners 62+ convert home equity into cash without monthly mortgage payments. Instead of paying the lender, the lender pays you—through a lump sum, monthly payments, or a line of credit. The loan is repaid when you sell, move out, or pass away. You keep ownership but must cover taxes, insurance, and upkeep.
Pros and cons of reverse mortgages
Like any financial tool, reverse mortgages come with tradeoffs worth weighing carefully.
See if you qualify for a reverse mortgage. Start hereReverse mortgage pros
- No monthly mortgage payments: You won’t have a loan payment eating into your monthly budget, which can be a game-changer on a fixed income.
- Flexible payout options: You can choose how to receive your money, whether that’s all at once, in monthly installments, or as a credit line you draw from when needed.
- Non-recourse protection: Even if your loan balance eventually exceeds your home’s value, neither you nor your heirs will owe the difference.
- Stay in your home: You can age in place while accessing the equity you’ve built over the years.
Reverse mortgage cons
- Your loan balance grows: Because you’re not making payments, interest keeps adding up. Over time, your equity shrinks.
- Higher upfront costs: Expect to pay more in closing costs and mortgage insurance premiums compared to a HELOC.
- Ongoing responsibilities: You still have to pay property taxes and insurance. Fall behind, and you could face foreclosure.
- Less for your heirs: The growing balance means there’s typically less equity left when the home is eventually sold.
What is a home equity line of credit?
A home equity line of credit (HELOC) is a revolving credit line secured by your home. You can borrow as needed during a draw period (usually 10 years), then repay it with interest over 10–20 years. Rates are often variable, so payments can change. You only pay interest on what you use, and borrowers must qualify based on income.
Pros and cons of a HELOC for retirement
For retirees specifically, the benefits and drawbacks look a bit different than they do for someone still working.
Check your HELOC eligibility. Start hereHELOC pros
- Lower upfront costs: You’ll typically pay much less to open a HELOC than you would for a reverse mortgage. Some lenders even waive closing costs entirely.
- Pay only for what you use: Borrow $10,000 of a $50,000 credit line, and you only pay interest on that $10,000.
- Keep more equity: Making regular payments means you can maintain or even rebuild your ownership stake in the home.
- Possible tax benefits: If you use the funds for home improvements, the interest may be tax-deductible.
HELOC cons
- Monthly payments start right away: Even during the draw period, you’ll owe at least interest-only payments. On a fixed retirement income, that can add up.
- Rates can rise: Most HELOCs have variable rates, so your payment could increase if interest rates climb.
- Income requirements: Lenders want proof you can handle the payments, which can be tricky without a regular paycheck.
- Your home is on the line: Miss payments, and the lender can foreclose.
Reverse mortgage eligibility requirements
If you’re considering a HECM, here’s what lenders look for.
See if you qualify for a reverse mortgage. Start hereHECM age and residency requirements
Every borrower on the loan has to be 62 or older. The home has to be your primary residence, meaning you live there most of the year. And here’s something to keep in mind: the older you are, the more you can typically borrow, subject to HECM loan limits.
Equity and property requirements
You’ll need significant equity in your home. That means either owning it outright or having a small enough mortgage balance that the reverse mortgage proceeds can pay it off. Eligible properties include single-family homes, 2- to 4-unit properties where you live in one unit, FHA-approved condos, and some manufactured homes.
Financial assessment and counseling
Before you can get a HECM, you’ll sit down with a HUD-approved counselor who will walk you through how the loan works, what it costs, and what you’re responsible for. Lenders also do a financial assessment to make sure you can handle ongoing property taxes, insurance, and maintenance.
HELOC eligibility requirements
Qualifying for a HELOC can be trickier in retirement.
Check your HELOC eligibility. Start hereCredit score and income requirements
Lenders typically want to see a credit score of 680 or higher. But the real challenge for retirees is proving income. Without a regular paycheck, you’ll need to show reliable income from sources like Social Security, pensions, or investment accounts. Your debt-to-income ratio matters too.
Equity and loan-to-value requirements
Most lenders expect you to have at least 15% to 20% equity in your home. They’ll also calculate your combined loan-to-value ratio, which adds up your existing mortgage and the new HELOC. That total usually can’t exceed 85% of your home’s value.
When a reverse mortgage line of credit may be better
A reverse mortgage often makes more sense when:
- You want to get rid of your current monthly mortgage payment
- Your retirement income can’t comfortably support new monthly payments
- You plan to stay in your home for many years
- You’d like a credit line that grows over time as a financial cushion
- Leaving the maximum inheritance isn’t your top priority
For retirees in these situations, a reverse mortgage directly addresses the need for more cash flow without adding a new bill to pay each month.
When a HELOC may be better for retirement income
A HELOC can be the smarter choice when:
- You have dependable retirement income and can handle monthly payments
- You need money for a specific project, like a kitchen renovation, rather than ongoing expenses
- Keeping as much equity as possible for your heirs matters to you
- You’re younger than 62 and can’t qualify for a reverse mortgage yet
- You might sell your home in the next few years
In these cases, a HELOC offers flexible, lower-cost access to equity for shorter-term needs.
How to choose between a reverse mortgage and HELOC
A few key questions can help point you in the right direction:
- Can your monthly income handle HELOC payments? If money is tight, the no-payment feature of a reverse mortgage is a big advantage.
- How long will you stay in your home? Reverse mortgages work best for people planning to stay put. If you might sell soon, a HELOC is probably less expensive overall.
- How much do you want to leave your heirs? A HELOC helps preserve equity. A reverse mortgage reduces what’s left.
- Do you need ongoing income or money for a one-time expense? Reverse mortgages suit long-term income needs. HELOCs work well for short-term borrowing.
Before making a final decision, talking with a HUD-approved counselor can help you understand reverse mortgages more fully. And for either option, comparing offers from several lenders helps you find the best terms.
Alternatives to a reverse mortgage or HELOC
If neither option feels right, a few other paths exist.
Check your HELOC eligibility. Start hereHome equity loans
A home equity loan gives you a lump sum with a fixed interest rate and fixed monthly payment. Unlike a HELOC’s revolving credit, it’s a one-time loan. This can work well for a large expense if you can manage the payments.
Cash-out refinance
A cash-out refinance replaces your current mortgage with a larger one, and you pocket the difference. You’ll have monthly payments on the new, bigger loan. This might make sense if you can also lock in a lower interest rate than you have now.
Home equity investments
With a home equity investment, you receive cash today in exchange for a share of your home’s future appreciation. There are no monthly payments or interest charges. But when you sell, the company gets its investment back plus a percentage of any increase in your home’s value, which can add up quickly in a strong market.
Find the right retirement equity solution for you
The right choice depends on your income, your goals, and how long you plan to stay in your home. Taking time to understand the costs and obligations of each option puts you in a stronger position.
Comparing offers from multiple lenders is a smart next step. The Mortgage Reports offers educational resources and lender comparisons to help you weigh your options.
FAQs about reverse mortgages vs HELOCs
Time to make a move? Let us find the right mortgage for youThis rule lets heirs pay off a reverse mortgage for 95% of the home's current appraised value, even if the loan balance is higher. It protects them from owing more than the home is worth.
Yes, and it's actually a common move. If you meet the age and equity requirements, you can use reverse mortgage proceeds to pay off your HELOC balance and eliminate those monthly payments.
Reverse mortgage funds count as a loan, not income, so they typically don't affect Medicaid eligibility. However, if you let the money sit in a bank account and it builds up, it could count as an asset and potentially impact your eligibility.
If you move out of your primary residence for more than 12 consecutive months, including into assisted living, the loan becomes due. At that point, you or your heirs typically repay it by selling the home.
