Reverse mortgage vs HELOC vs home equity loan: Comparing your home equity options

American homeowners are sitting on an estimated $34.7 trillion in home equity, according to the U.S. Department of Housing and Urban Development (HUD). For many homeowners, that growth has quietly turned their homes into their largest financial asset.

But accessing that equity can feel complicated. A quick internet search will show you several options, including a home equity loan, home equity line of credit (HELOC), and a reverse mortgage. While these options may sound similar, they work very differently—and choosing the right one depends on your financial goals, timeline, and stage of life.

This guide breaks down each option, explaining how they work, when they may make sense, and the key differences to consider. Here’s what you need to know to make a more informed decision.

What is a reverse mortgage?  

A reverse mortgage is a loan available to older homeowners, typically age 62+, that may allow them to convert a portion of their home equity into cash. Reverse mortgages do not require monthly mortgage payments and do not have to be repaid until the borrower dies, moves out of the home, or otherwise fails to meet the loan terms.

However, the borrower must meet specific loan obligations, including living in the home as a primary residence, maintaining the property, and paying taxes, fees, and insurance costs.

Instead of making payments to a lender, the lender disburses loan proceeds to you. The loan balance increases over time as fees and interest accrue. Here’s a quick guide to how reverse mortgages work:

• You borrow against the equity in your home
• Funds may be received as a lump sum, monthly payments, a line of credit, or a combination
• There are no required monthly mortgage payments as long as you meet loan obligations
• Interest accrues on the outstanding balance over time
• You retain ownership of your home
• When a repayment event occurs (sale, move, passing away, or failing to meet loan terms), you or your heirs either repay the loan or sell the home to satisfy the loan.

It’s also worth noting that there are different types of reverse mortgages, and some have more borrower safeguards than others. A Home Equity Conversion Mortgage (HECM) is a federally insured reverse mortgage loan with specific eligibility rules and requirements. Private lenders also offer proprietary reverse mortgages with different terms, so make sure you understand the differences.

Key advantages to a reverse mortgage include:

• No required monthly mortgage payments
• Flexible payout options to fit different financial needs
• May help cover unexpected expenses or provide flexibility in retirement
• Non-recourse loan—borrowers (or heirs) never owe more than the home’s value¹

There are also a few considerations to keep in mind:

• The loan balance grows over time as interest accrues
• Your home equity decreases, which may impact inheritance
• There are upfront costs, including closing costs and mortgage insurance premiums (for HECMs)
• There are ongoing costs as well—you must pay property taxes, insurance, and maintain the home

The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.

To learn more, please visit the CFPB’s “Reverse Mortgage: A Discussion Guide.”

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What is a HELOC (home equity line of credit)?

A HELOC is a revolving line of credit that may allow homeowners to borrow against their home equity as needed, up to an approved limit. Unlike most loans, which you borrow once and then repay it over time, a HELOC works more like a credit card. You can draw funds over time and even borrow, repay, and borrow again during the withdrawal period.

HELOCs require monthly payments and are typically divided into two phases: a draw period and a repayment period. During the draw period, you can borrow, repay, and borrow again up to your credit limit. Once the draw period ends, you enter the repayment period, where you can no longer borrow and must repay the outstanding balance and accrued interest.

Here’s a quick guide to how HELOCs work:

• You are approved for a maximum credit limit based on your home equity, credit, and income.
• You can borrow as needed during the draw period (often 5–10 years, but varies by lender and approval).
• Monthly payments are typically interest-only during the draw period.
• During the repayment period, you make both principal and interest payments.
• Interest rates are usually variable, meaning your payment amount can change over time.

One key point to note about HELOCs: During the repayment period, you pay towards both interest and principal, which is often much higher than the interest-only payments made during the borrowing period. That shift between the draw period and repayment period can catch some borrowers off guard.

Key advantages of a HELOC include:

• Flexible access to funds—you only borrow what you need, when you need it.
• Lower initial monthly payments during the draw period (interest-only).
• May be useful for ongoing expenses like home improvements or emergency costs.
• Interest rates may be lower than other forms of credit, depending on your credit score.

But, like all home equity options, there are also a few considerations to keep in mind:

• Monthly payments are required and may increase over time.
• Variable interest rates, meaning your payment could rise if rates increase.
• Easy access to funds may lead to overborrowing if not managed carefully.
• Your home is used as collateral, so failure to repay could put it at risk.
• Strong credit, stable income, and a low debt-to-income ratio are typically required.  

What is a home equity loan?

A home equity loan may allow homeowners to borrow against their home equity and receive the funds as a lump sum. Unlike a HELOC, which offers ongoing access to funds, a home equity loan provides a one-time payout with a fixed repayment schedule. Home equity loans require monthly payments and typically come with a fixed interest rate, so your payment usually stays the same over the life of the loan.

Here’s a quick guide to how home equity loans work:

• You receive a lump sum payment upfront based on your available home equity, credit, and income.
• You repay the loan through fixed monthly payments over a set term, often 5 to 30 years, but terms vary by lender.
• Payments include both principal and interest from the start.
• Interest rates are typically fixed, providing predictable monthly payments.
• Your home is used as collateral for the loan.

One key point to note about home equity loans: Because you receive all funds upfront and begin repaying both principal and interest immediately, your monthly payments are typically higher than the initial payments on a HELOC, but they remain consistent over time. That predictability can make it easier to budget. 

Key advantages of a home equity loan include:

• Predictable monthly payments due to fixed interest rates.
• A lump sum payout that may work well for large, one-time expenses.
• May be easier to budget for than variable-rate products.
• Interest rates may be lower than unsecured loans, depending on your credit profile.

There are also a few considerations to keep in mind:

• Monthly payments are required and begin immediately after borrowing.
• Less flexibility—you cannot borrow additional funds without taking out a new loan.
• Your home is used as collateral, so failure to repay could put it at risk.
• Closing costs and upfront fees may increase the loan amount.
• Strong credit, stable income, and a low debt-to-income ratio are typically required for eligibility.

Finance of America does not offer home equity loans.

Not sure where to start?

Our reverse mortgage specialists will be happy to help you.

Speak to a loan specialist

Not sure where to start?

Our reverse mortgage specialists will be happy to help you.

Speak to a loan specialist

Speak with a specialist today

Call us at (800) 820-1715 or fill out the form below to connect with a licensed reverse mortgage specialist. Receive a no-obligation estimate, and explore your options with someone who understands your specific situation.

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Speak with a specialist today

Call us at (800) 820-1715 or fill out the form below to connect with a licensed reverse mortgage specialist. Receive a no-obligation estimate, and explore your options with someone who understands your specific situation.

All fields are required.

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Reverse mortgage product availability varies by state. Understanding where your home is located will help us provide an accurate calculation of the funds that may be available to you.

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Age of youngest borrower

Eligibility for a reverse mortgage generally requires the homeowner to be at least 62 years old. However, some of our proprietary products have minimum age requirements as low as 55. If you’re applying with a co-borrower, use the age of the youngest homeowner.

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Reverse mortgage vs HELOC vs home equity loan: Key differences  

While reverse mortgages, HELOCs, and home equity loans all allow you to tap into your home equity, they differ in important ways. Understanding these differences and how they’ll impact you are key to making an informed decision.

This chart breaks down a few of the most important key differences. Below, we’ll dive into how each home equity option differs based on eligibility requirements, payout options, loan amounts, repayment structure, and more.

Comparison factor	Reverse mortgage	Home equity loan	HELOC
Age requirement	Typically 62+, but lower for some proprietary products	No age requirement	No age requirement
Monthly payments required?	No required monthly mortgage payments as long as loan obligations are met*	Yes—fixed monthly payments	Yes—variable monthly payments during draw and repayment periods
Payout structure	Lump sum, monthly payments, line of credit, or combination	Lump sum	Revolving line of credit
Credit & income requirements	Financial assessment focused on ability to pay taxes, insurance, and property charges	Strong credit and stable income typically required	Strong credit and stable income typically required
Interest rate type	Fixed or adjustable, depending on payout option	Usually fixed	Usually adjustable
How interest accrues	Added to loan balance over time	Paid monthly	Paid monthly during draw and repayment
Impact on home equity	Equity decreases over time as interest accrues	Equity increases as loan balance is repaid	Equity fluctuates based on amount borrowed and repaid
Repayment trigger	When borrower sells, moves out permanently, or passes away or otherwise fails to meet loan terms	Fixed term repayment	Repayment after draw period ends

 *The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.

Eligibility requirements

Eligibility varies significantly across home equity options, particularly when it comes to age, financial qualifications, and property requirements.

Reverse mortgages (many of which are HECMs) are designed for older homeowners and come with specific criteria and consumer protections.

To be eligible, borrowers must at minimum:

• Be 62 years of age or older (55+ for some proprietary reverse mortgages)
• Live in the home as their primary residence
• Have sufficient home equity
• Complete a HUD-approved counseling session before applying
• Undergo a financial assessment to demonstrate the ability to pay ongoing property charges, such as taxes, insurance, and maintenance

The property itself must also meet certain eligibility standards and may need to pass a home appraisal.

HELOCs and home equity loans, on the other hand, do not have age requirements but generally require:

• Sufficient home equity, often leaving at least 15–20% equity after borrowing.
• The home serves as collateral—it may need to be a primary or qualifying property.
• Financial approval based on credit, income, and debt-to-income (DTI) ratio.

Qualifications for HELOCs and home equity loans are typically more dependent on your financial profile than your age or life stage.

Credit and income requirements

HECM reverse mortgages do not have a set required income or credit score. Instead, lenders conduct a financial assessment to confirm you can continue paying property-related expenses, such as taxes, insurance, and maintenance. (Note: Some proprietary reverse mortgages do have a minimum credit score requirement.)

HELOCs and home equity loans rely heavily on your financial profile. Lenders typically evaluate your credit score, income stability, and DTI ratio to determine eligibility and loan terms.

Repayment structure

One of the biggest differences between home equity loan options is how the repayment process works. Reverse mortgages do not require monthly mortgage payments as long as loan obligations are met. Instead, the loan is repaid when a triggering event occurs, such as selling the home, moving out permanently, passing away, or otherwise not meeting the loan terms.

The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.

Both home equity loans and HELOCs both require monthly payments. Home equity loans have fixed payments from the start, while HELOCs often begin with interest-only payments during the draw period before transitioning to full repayment.

Payout options
How you receive funds also varies by product. Reverse mortgages offer the most flexibility, with payout options that may include a lump sum, monthly payments, a line of credit, or a combination. Home equity loans typically provide a one-time lump sum, while HELOCs function as a revolving line of credit that allows you to draw funds over time.

Interest rates and rate structure

Interest rates can be either fixed or adjustable, depending on the specific loan type, not just whether it’s a reverse mortgage, HELOC, or home equity loan.

Reverse mortgages may offer fixed or adjustable rates depending on how funds are received, with interest accruing and compounding on the loan balance over time. Home equity loans usually come with fixed interest rates, providing predictable monthly payments. HELOCs typically have variable rates, which means payments may fluctuate over time.

Impact on home equity over time

With a reverse mortgage, your loan balance increases over time as interest accrues, which reduces your remaining equity. With a home equity loan or HELOC, your equity generally decreases when you borrow, but may rebuild over time as you make payments and reduce the loan balance.

These differences can play an important role in long-term financial planning and how much equity remains for future needs or heirs.

Loan amount determination

The amount you may be able to borrow depends on different factors for each option. Reverse mortgage proceeds are generally based on the borrower’s age, home value, available equity, and current interest rates. Your credit profile, income, DTI ratio, and the amount of equity available in your home more heavily influence HELOCs and home equity loans.

Costs and fees

All three options come with costs, but the structure varies. Reverse mortgages may have higher upfront costs, including closing costs and mortgage insurance premiums for federally insured HECMs, as well as potential servicing fees over time. You must also maintain the home, which may come with its own costs. Home equity loans and HELOCs may include closing costs and lender fees, similar to a traditional mortgage, as well as interest. 

Questions to ask when comparing reverse mortgage, HELOC, and home equity loans

There is no “right” answer when it comes to accessing your home equity. The right fit depends on your financial situation and future goals. Asking these questions will help you decide on the right course of action:

• Do I want to make monthly payments? Home equity loans and HELOCs require monthly payments. Reverse mortgages do not require monthly mortgage payments as long as loan obligations are met. The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.
• How much money do I need and when? Do I need a lump sum, flexible access to funds over time, or predictable monthly cash flow? HELOCs offer flexible access, while home equity loans offer lump sums. Reverse mortgages offer a lump sum, lines of credit, monthly payouts, or a combination of those options.
• Do I meet the eligibility requirements? Reverse mortgages typically require borrowers to be 62 or older, have sufficient home equity, and pass a financial assessment. HELOCs and home equity loans rely heavily on credit, income, and DTI ratio.
• How strong is my credit profile? HELOCs and home equity loan terms are based on your credit profile, while reverse mortgages are generally not.
• What are the total costs? Consider interest rates (fixed vs. adjustable), closing costs, mortgage insurance premiums (for HECMs), and long-term interest accrual.
• How will this affect my home equity over time? HELOC and home equity loans are repaid, which generally preserves equity for your heirs. Reverse mortgages can impact how much is left for your heirs.
• Have I discussed this decision with my family or financial advisor? Especially for reverse mortgages, setting clear expectations may help avoid future misunderstandings.

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Which home equity option is right for you?

Now that we’ve explored each home equity option in detail, you hopefully have the information you need to make an informed decision. A quick recap:

• A reverse mortgage may be an option for homeowners aged 62 or older who want to access home equity without taking on required monthly mortgage payments and who plan to remain in their home long term.
• A home equity loan may appeal to borrowers with strong credit and stable income who prefer predictable, fixed monthly payments and need a lump sum for a specific expense.
• A HELOC may work for homeowners who want flexible access to funds over time and feel comfortable managing variable payments and potentially changing interest rates.

The right choice depends on your cash flow needs, credit profile, long-term housing plans, and estate goals. Reviewing options with a financial professional and discussing the decision with family members could help ensure the solution aligns with your broader retirement strategy. 

The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.

¹ A non-recourse reverse mortgage transaction limits the homeowner’s liability to the proceeds of the sale of the home (or any lesser amount specified in the credit obligation).

Non-recourse means that you, or your estate, can’t owe more than the value of your home when the loan becomes due and the home is sold.

Non-recourse means that if you default on the loan, or if the loan cannot otherwise be repaid, the lender cannot look to your other assets (or your estate’s assets) to meet the outstanding balance on your loan.

Frequently asked questions   

Is there something better than a reverse mortgage?  

There isn’t a universal option that is “better” than a reverse mortgage—it depends on your financial goals, age, and how you want to use your home equity. A reverse mortgage may be a good option for older homeowners who want to access equity without monthly mortgage payments. Alternatives like a HELOC or home equity loan could be better for those who have strong income, want lower upfront costs, or plan to repay what they borrow. 

The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.

What is the difference between a reverse mortgage and a HELOC?  

The main difference between a reverse mortgage and a HELOC is how and when the loan is repaid. With a reverse mortgage, the loan is typically repaid when the home is sold, the borrower moves out, or the borrower otherwise fails to meet loan terms. A HELOC requires monthly payments and is based on income and credit qualifications. 

What are the eligibility requirements for a reverse mortgage?  

The eligibility requirements vary based on whether you apply for a HECM or other reverse mortgage product. In general, you must be at least 62 years old (55+ for some proprietary products), live in the home as your primary residence, and have sufficient equity in the property. You must also be able to pay ongoing costs like property taxes, homeowners insurance, and home maintenance. Most reverse mortgages require borrowers to attend a counseling session with a HUD-approved counselor.

→ Learn more about reverse mortgage eligibility requirements.

Is a HELOC cheaper than a reverse mortgage?  

There is no cut-and-dried “cheaper” option— it depends on how much you borrow, your interest rate over time, closing costs, and other fees. In general, a HELOC may have lower upfront costs, but requires monthly payments and often has variable interest rates. Reverse mortgages tend to have higher upfront fees but do not require monthly mortgage payments.

The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.