Reverse Mortgage vs HELOC: Which Is Better for Seniors?

How a Reverse Mortgage Works

A reverse mortgage lets homeowners aged 62 or older convert home equity into cash without making monthly payments. The most common type is the Home Equity Conversion Mortgage (HECM), which is FHA-insured and makes up about 95% of all reverse mortgages. Instead of paying the lender each month, the lender pays you — as a lump sum, monthly installments, a line of credit, or some combination. The loan balance grows over time and gets repaid when you sell the home, move out permanently, or die.

The amount you can borrow depends on your age, your home’s value, and current interest rates. At age 65 with a $400,000 home and rates at 6.5%, you might access $180,000-$220,000 — roughly 45-55% of the home’s value. The older you are, the more you can borrow because the lender expects a shorter repayment horizon. A 75-year-old with the same home might access $240,000-$280,000. You must own the home outright or have substantial equity, and any existing mortgage gets paid off from the reverse mortgage proceeds first.

Costs are the biggest drawback. Reverse mortgages carry an origination fee (up to $6,000), FHA mortgage insurance premium (2% upfront plus 0.5% annually), closing costs ($3,000-$5,000), and ongoing interest that compounds on the growing balance. On a $200,000 reverse mortgage at 6.5%, the balance grows to roughly $370,000 after 10 years and $685,000 after 20 years — assuming no repayments. That compounding eats equity fast. You also must continue paying property taxes, insurance, and maintenance. Failure to do so triggers default. Use our mortgage calculator to model how compounding interest affects long-term costs.

How a HELOC Works

A Home Equity Line of Credit (HELOC) is a revolving credit line secured by your home’s equity. It works like a credit card with your house as collateral. Lenders typically let you borrow up to 80-85% of your home’s value minus your existing mortgage balance. On a $400,000 home with a $200,000 mortgage, you could access a HELOC of $120,000-$140,000. There’s no age requirement — any homeowner with sufficient equity and income qualifies.

HELOCs have two phases. The draw period (usually 10 years) lets you borrow, repay, and re-borrow up to your limit. You only pay interest on what you’ve drawn — if you have a $100,000 HELOC but only use $30,000, you pay interest on $30,000. Minimum payments during the draw period are typically interest-only. After the draw period, the repayment period (10-20 years) kicks in, and you pay principal plus interest. No more borrowing. Monthly payments can jump significantly when repayment begins.

HELOC rates are variable, tied to the prime rate plus a margin. In early 2026, that puts most HELOCs at 8-9.5%. Some lenders offer fixed-rate conversion options that lock portions of your balance at a fixed rate. Closing costs are minimal — often $0-$500 — compared to thousands for a reverse mortgage. The trade-off: you must qualify based on income and credit score (typically 680+), and you make monthly payments from day one. Run the numbers on our HELOC calculator to see what your payments would look like.

Key Differences Between Reverse Mortgages and HELOCs

The fundamental difference is who makes payments. With a HELOC, you borrow money and pay it back monthly with interest. With a reverse mortgage, you receive money and don’t pay anything back until the loan ends — through home sale, moving, or death. This makes reverse mortgages attractive for retirees on fixed incomes who can’t handle monthly payments, but it comes at a steep cost in compounding interest and fees.

Age and income requirements diverge sharply. Reverse mortgages require you to be 62+ and don’t care about your income or credit score (it’s your equity they want). HELOCs require proof of income, a credit score of 680+, and a debt-to-income ratio typically under 43%. A retired homeowner living on Social Security with $500,000 in home equity might easily qualify for a reverse mortgage but get declined for a HELOC because their monthly income is too low relative to the credit line.

Total cost over time isn’t even close. A $150,000 HELOC at 8.5% used for 10 years costs approximately $70,000-$85,000 in total interest if you make interest-only payments during the draw period. A $150,000 reverse mortgage at 6.5% held for 10 years accrues about $130,000 in interest and insurance premiums — plus $10,000-$15,000 in upfront costs. The reverse mortgage costs roughly double because interest compounds on the growing balance with no monthly payments chipping away at it.

Inheritance impact is significant. A HELOC gets repaid during your lifetime, preserving home equity for heirs. A reverse mortgage erodes equity steadily. If you take $200,000 from a reverse mortgage on a $400,000 home and live 15 more years, the loan balance could exceed the home’s value — leaving nothing for heirs. The FHA insurance means heirs won’t owe more than the home is worth, but they may inherit a house with zero equity. Check current rates to understand how interest environments affect both products.

When to Choose a Reverse Mortgage

A reverse mortgage makes sense when you’re 70+ with significant home equity, limited income, and plan to stay in the home for life. The classic scenario: a widowed retiree on $2,400/month Social Security with a paid-off $350,000 home and $30,000 in savings. They can’t qualify for a HELOC, can’t afford additional monthly payments, and need $1,000/month to cover rising healthcare and living costs. A reverse mortgage provides that income stream without requiring repayment during their lifetime.

It also fits when you don’t have heirs who need the home equity, or when staying in your home is the priority over preserving an inheritance. A reverse mortgage can fund aging-in-place modifications ($20,000-$50,000 for accessibility renovations), cover long-term care costs, or eliminate an existing mortgage payment that’s straining your budget. The line-of-credit option is particularly smart — unused credit grows over time, creating a larger pool for future needs.

When to Choose a HELOC

Choose a HELOC when you have income to make monthly payments and want flexible, low-cost access to equity. The typical HELOC borrower is 45-65, still working, and needs funds for home improvements, debt consolidation, or a large purchase. A $80,000 HELOC at 8.5% with interest-only payments costs about $567/month. That’s manageable on a working income and far cheaper long-term than a reverse mortgage would be.

HELOCs also work better for short-term needs. If you need $50,000 for a kitchen renovation and plan to repay it in 3-5 years, a HELOC costs $12,000-$20,000 in interest. A reverse mortgage for the same amount costs $15,000+ in upfront fees alone before interest even starts accruing. For any borrowing need under 10 years where you can make payments, the HELOC wins on cost every time. Thinking about using equity for renovations? Our home services hub has contractor resources.

Common Mistakes

Taking a reverse mortgage at 62. The younger you are, the less you can borrow and the longer interest compounds. Taking a reverse mortgage at 62 instead of 72 means an extra decade of compounding on the balance. If you can wait, the math improves substantially. At 62, consider a HELOC or downsizing instead. At 75+, the reverse mortgage math starts making more sense.

Ignoring the ongoing obligations of a reverse mortgage. You still owe property taxes, homeowners insurance, and maintenance. About 10% of reverse mortgage borrowers face default not because of the loan itself, but because they can’t keep up with taxes and insurance. If your $4,000/year property tax bill is a stretch, a reverse mortgage doesn’t solve your cash flow problem — it adds a ticking clock to it.

Using a HELOC as an emergency fund. HELOCs can be frozen or reduced by lenders during economic downturns — exactly when you’d need the money most. During 2008-2009, major banks froze millions of HELOCs overnight. Don’t treat your HELOC as a substitute for 6 months of cash savings. It’s a tool for planned expenses, not a safety net.

Not comparing reverse mortgage lenders. Rates, fees, and terms vary significantly. One lender might charge a $6,000 origination fee while another charges $2,500 for the same loan. The difference in total cost over 15 years is tens of thousands of dollars. Get quotes from at least three HECM lenders and compare the total cost of each, not just the interest rate.

Forgetting about the HELOC repayment phase. Interest-only payments of $500/month during the draw period can balloon to $1,200/month when principal repayment begins. If you’re planning to retire during the repayment phase, make sure your retirement income covers those higher payments. Many borrowers get blindsided by the payment jump at year 10.

Frequently Asked Questions

Can I lose my home with a reverse mortgage?

Yes, but not from the loan balance exceeding the home’s value. You can lose your home if you fail to pay property taxes, maintain homeowners insurance, or keep the property in reasonable condition. The lender can also call the loan if you leave the home for 12+ consecutive months (such as moving to assisted living). As long as you meet these obligations and live in the home, you can’t be forced to repay or move out.

What happens to a reverse mortgage when the borrower dies?

Heirs have 6-12 months to either sell the home and repay the loan from proceeds, refinance the reverse mortgage into a traditional mortgage, or pay off the balance and keep the home. If the loan balance exceeds the home’s value, heirs can walk away with no personal liability — the FHA insurance covers the shortfall. They won’t owe the lender anything beyond the home’s sale price. This is the “non-recourse” feature of HECM loans.

Can I get a HELOC if I’m retired?

Yes, but qualifying is harder. Lenders need to see sufficient income from Social Security, pensions, retirement account distributions, or investment income. You’ll need a credit score of 680+ and a debt-to-income ratio under 43%. Some retirees with $4,000-$5,000/month in combined retirement income and strong credit qualify easily. Others with $2,000/month in Social Security alone may not qualify for a meaningful credit line.

Are reverse mortgage proceeds taxable?

No. Reverse mortgage payments are loan proceeds, not income, so they’re not subject to federal income tax. They also don’t affect Social Security benefits. However, they can affect Medicaid eligibility if you don’t spend the money in the month you receive it — any funds sitting in your bank account count as an asset for Medicaid purposes. The line-of-credit option helps here because undrawn funds don’t count as assets.

Can I have both a HELOC and a mortgage at the same time?

Yes. A HELOC sits as a second lien behind your primary mortgage. Your combined loan-to-value (CLTV) typically can’t exceed 80-85%. So on a $400,000 home with a $250,000 mortgage, you could potentially get a HELOC of $70,000-$90,000. Having both is common — just make sure you can handle both payment obligations. Run the numbers through our affordability calculator to check your total debt capacity.

What’s the minimum age for a reverse mortgage?

62 for a federally insured HECM loan. Some proprietary (non-FHA) reverse mortgage products start at age 55, but these are less regulated, potentially more expensive, and lack the consumer protections of HECM loans. If you’re between 55-62 and need equity access, a HELOC, cash-out refinance, or downsizing are typically better options.

Do reverse mortgages have variable or fixed rates?

Both. Fixed-rate reverse mortgages require you to take the full amount as a lump sum at closing. Variable-rate reverse mortgages allow monthly payments, line of credit, or both — offering more flexibility. Most financial advisors recommend the variable-rate line-of-credit option because unused credit grows over time (at the same variable rate), creating a larger available pool for future needs. The growth feature is unique to reverse mortgages and doesn’t exist in any other financial product.