Reverse Mortgage vs Home Equity Loan

Three Ways to Access Your Home Equity

If you're a homeowner looking to tap into your home equity, you have several options: a reverse mortgage, a home equity loan, or a home equity line of credit (HELOC). Each product works differently and is designed for different situations. Understanding the differences can help you choose the right option for your needs.

Quick Comparison

Reverse Mortgage

A reverse mortgage allows homeowners 62 and older to convert home equity into cash without making monthly mortgage payments.

Pros:

• No monthly mortgage payments required
• No income or credit score requirements
• Multiple ways to receive funds
• Non-recourse (you'll never owe more than the home's value)
• Can't be foreclosed for missed payments (there are none)
• Stay in your home as long as you meet loan obligations

Cons:

• Must be 62 or older
• Higher upfront costs than other options
• Loan balance grows over time
• Reduces inheritance for heirs
• Must pay property taxes, insurance, and maintenance

Best For:

Retirees who want to supplement income, eliminate monthly mortgage payments, or access cash without selling their home—especially those who plan to stay in the home long-term.

Home Equity Loan

A home equity loan provides a lump sum of money that you repay with fixed monthly payments over a set term (typically 5-30 years).

Pros:

• Fixed interest rate and predictable payments
• Lower closing costs than reverse mortgages
• Interest may be tax-deductible
• Available to any age
• Good for one-time large expenses

Cons:

• Requires monthly payments
• Need sufficient income to qualify
• Credit score requirements
• Risk of foreclosure if you can't make payments
• Adds to your monthly debt obligations

Best For:

Homeowners with steady income who need a lump sum for a specific purpose (home renovation, debt consolidation) and can comfortably handle additional monthly payments.

Home Equity Line of Credit (HELOC)

A HELOC works like a credit card secured by your home. You can draw funds as needed during a "draw period" (typically 10 years), then repay during a "repayment period" (typically 20 years).

Pros:

• Flexibility to borrow only what you need
• Only pay interest on what you borrow
• Can reuse credit as you pay it down
• Lower closing costs
• Interest may be tax-deductible

Cons:

• Variable interest rates (payments can increase)
• Monthly payments required
• Income and credit requirements
• Draw period eventually ends
• Risk of foreclosure if you can't pay

Best For:

Homeowners with ongoing expenses or who want access to funds "just in case." Good for those who can manage variable payments and have steady income.

Key Questions to Ask Yourself

1. Can I afford monthly payments? If not, a reverse mortgage may be your only option.
2. Am I 62 or older? If not, you'll need a home equity loan or HELOC.
3. Do I have sufficient income? Home equity loans and HELOCs require income verification.
4. How long do I plan to stay in my home? Reverse mortgages make more sense for long-term stays.
5. Is preserving equity for heirs important? Home equity loans preserve more equity if paid off.
6. Do I need a lump sum or ongoing access? This affects which product is most suitable.

Which Option Is Right for You?

Choose a Reverse Mortgage if: You're 62+, want to eliminate monthly payments, have limited income, and plan to stay in your home long-term.

Choose a Home Equity Loan if: You have steady income, good credit, need a lump sum, and want fixed monthly payments.

Choose a HELOC if: You have steady income, good credit, want flexible access to funds, and can handle variable payments.

A Note About Combining Options

Some homeowners use a reverse mortgage to pay off an existing home equity loan or HELOC, eliminating those monthly payments while still accessing their equity. This can be a strategic move for retirees whose income has decreased but who still have home equity debt.