HELOC vs. Reverse Mortgage

Though they both allow you to draw from your home's value, they serve very different purposes, eligibility groups, and financial outcomes. Understanding their differences, advantages, and drawbacks is essential before deciding which (if either) is right for you.

A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by your home. Much like a credit card, you can borrow as needed (up to a certain limit), repay, and borrow again during the “draw period,” usually 5–10 years.

•  Lower Interest Rates: HELOCs often have lower interest rates than credit cards or personal loans.

•  Flexibility: Borrow as much or as little as you need, only paying interest on the amount you use.

•  Interest May Be Tax Deductible: If used for substantial home improvements, interest may qualify for tax deductions.

•  Variable Interest Rates: Most HELOCs have adjustable rates that can rise over time.

•  Monthly Payments: You must make regular interest (and eventually principal) payments, increasing your monthly obligations.

•  Risk of Foreclosure: Because your home is collateral, defaulting on a HELOC can lead to foreclosure.

A Reverse Mortgage, typically a Home Equity Conversion Mortgage (HECM), is available to homeowners aged 62 and older. It allows you to convert part of your home equity into cash, without making monthly mortgage payments. Instead, the loan is repaid when you move out, sell the home, or pass away.

•  No Monthly Mortgage Payments: Borrowers aren’t required to make payments as long as they live in the home.

•  Supplemental Income: Provides a stream of income, lump sum, or line of credit—ideal for retirees on a fixed income.

•  Non-Recourse Loan: You or your heirs will never owe more than the home's market value at the time of sale.

•  Accumulating Interest: The loan balance grows over time, reducing your home equity.

•  Upfront Costs: Reverse mortgages have high closing costs, mortgage insurance, and servicing fees.

•  Impact on Heirs: Your heirs may have to sell the home to repay the loan or refinance if they wish to keep it.

•  Eligibility & Rules: Must be 62+, live in the home as your primary residence, and stay current on property taxes and insurance.

• Choose a HELOC if you:

  • Have stable income and good credit

  • Need flexible borrowing for home renovations or major expenses

  • Can manage regular monthly payments

• Choose a Reverse Mortgage if you:

  • Are 62+ and want to stay in your home during retirement

  • Need supplemental income and don’t want to add monthly bills

  • Are comfortable reducing your home equity over time

Both HELOCs and Reverse Mortgages offer ways to leverage the value of your home, but they serve different financial needs and life stages. A HELOC provides revolving access to funds with repayment obligations, ideal for financially stable homeowners. A Reverse Mortgage offers cash flow in retirement without monthly payments, but at the cost of reducing the equity in your home over time.

Before making a decision, speak with a qualified mortgage professional or financial advisor. Understanding how these options align with your long-term goals is key to making the most of your home equity—without jeopardizing your financial future.