Reverse Mortgage vs HELOC for Seniors: 4 Key Differences

TL;DR: A reverse mortgage (HECM) is available at age 62+, requires no monthly payment as long as you live in the home, but carries upfront costs of roughly 2-4% of your home's value. A HELOC has lower closing costs, often just $0-$500, but requires monthly payments right away and can be frozen or called if your equity drops. Choose a reverse mortgage for steady income with no repayment pressure, and a HELOC for lower-cost, short-term borrowing you plan to pay back.

_Last reviewed: August 2026 · 8 min read_

You've built equity for 20 or 30 years and now you need some of it back, but the two main tools for doing that work almost nothing alike. One asks for no payment and never gets called due as long as you stay put. The other looks more like a regular loan with a bill every month. Here's how to tell which one fits your situation.

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Who actually qualifies for each option?

A reverse mortgage, specifically the FHA-insured Home Equity Conversion Mortgage (HECM), is limited to homeowners age 62 or older, and in 2025 it can be used on homes valued up to $1,209,750 under the FHA lending limit. You also need enough equity, typically 50% or more, and the home must be your primary residence.

A HELOC has no age floor. Any homeowner with sufficient equity and a qualifying credit score, usually 620 or higher, can apply. Lenders typically cap combined loan-to-value around 80-85%, so if your home is worth $400,000 and you owe $150,000, you might access up to $170,000 through a HELOC. If you're weighing a HELOC against a lump-sum alternative, HELOC vs Cash-Out Refinance walks through the tradeoffs in more detail.

How do the payments and interest actually work?

With a reverse mortgage, no monthly payment is required. Interest accrues on the balance and gets added to what you owe, so the loan balance grows over time instead of shrinking. You still must pay property taxes, homeowners insurance, and upkeep, or the loan can be called due.

With a HELOC, you owe interest-only or principal-plus-interest payments starting the month after you draw funds, often during a 10-year draw period followed by a 15-20 year repayment period. Rates are variable, and as of early 2025 many HELOCs sit in the 8-9.5% range tied to the prime rate. If you're unclear on how a variable-rate loan adjusts, When an Adjustable-Rate Mortgage Makes Sense explains the mechanics, which carry over closely to HELOC pricing.

| Feature | Reverse Mortgage (HECM) | HELOC | |---|---|---| | Minimum age | 62 | None | | Monthly payment | Not required | Required, starts immediately | | Upfront costs | 2-4% of home value | $0-$500 typically | | Balance over time | Grows | Shrinks as you repay | | Repayment trigger | Move, sell, or pass away | End of draw/repayment schedule |

What happens to the balance, and who inherits what?

A reverse mortgage balance is repaid when the last borrower moves out, sells, or passes away, usually from the sale of the home. Because it's a non-recourse loan, heirs never owe more than the home is worth at that time, even if the loan balance has grown past the sale price. If your kids want to keep the house, they can repay the loan balance or 95% of the appraised value, whichever is less.

A HELOC works the opposite way. Heirs inherit whatever remaining balance you owe, alongside the first mortgage if there is one. If you're comparing this against a fixed home equity loan structure instead of a line of credit, Home Equity Loan vs HELOC breaks down how the repayment terms differ. Either way, understanding your current payoff amount matters, and How to Read Your Mortgage Statement shows you where to find that number on your existing loan.

What are the real costs and risks I should weigh?

Reverse mortgage costs run higher upfront, typically including a 2% FHA insurance premium, origination fees capped at $6,000, and closing costs, which together can total $10,000-$16,000 on a $400,000 home. The tradeoff is no payment obligation, which matters if your monthly income is fixed.

A HELOC costs far less to open but exposes you to payment risk. If your income drops or the line gets frozen due to falling home values, you're still on the hook for payments. Lenders can also reduce or suspend your credit line if your local market softens, something that happened widely during 2008-2009. Before drawing on either type of equity access, it's worth checking your buffer first. How Much Emergency Fund a Homeowner Needs is a useful gut-check on whether you should be borrowing at all right now or shoring up savings instead.

Which one fits my actual retirement plan?

The right choice depends on whether you need income or a short-term bridge. If you're 62+, plan to stay in the home long-term, and want to supplement fixed income without a payment, a reverse mortgage tends to fit better despite the higher upfront cost. If you need a smaller, temporary amount, say $20,000 for a roof repair or medical bill, and can comfortably make payments, a HELOC's lower fees make it the cheaper path.

Some homeowners also use a reverse mortgage as a standby line of credit rather than a paycheck. Because unused HECM credit lines grow over time at the same rate as the loan's interest rate, this strategy has become common in retirement planning circles, though it works best when paired with advice from a fee-only financial planner rather than a loan officer alone.

FAQ

Can I get a reverse mortgage if I still owe money on my house?

Yes, as long as the reverse mortgage proceeds are enough to pay off your existing mortgage balance, which happens automatically at closing. Most borrowers use a portion of the reverse mortgage funds specifically for this payoff.

Does a HELOC affect my Social Security or Medicare?

No, HELOC funds are loan proceeds, not income, so they don't count against Social Security or Medicare eligibility. Reverse mortgage proceeds are treated the same way for federal benefits purposes, though they can affect need-based programs like Medicaid depending on how the funds are held.

What credit score do I need for a HELOC versus a reverse mortgage?

HELOCs typically require a credit score of at least 620, sometimes higher for the best rates. HECM reverse mortgages don't have a strict minimum score, but lenders run a financial assessment to confirm you can cover taxes, insurance, and upkeep.

Can the bank take my house with a reverse mortgage if I miss a tax payment?

Yes, failing to pay property taxes or homeowners insurance is one of the few ways a reverse mortgage can be called due, potentially leading to foreclosure. This is why lenders often set aside a portion of proceeds in an escrow-like reserve for these costs; Escrow Accounts Explained covers how that reserve function typically works on a standard mortgage.

Is interest on a HELOC or reverse mortgage tax deductible?

HELOC interest may be deductible if the funds are used to buy, build, or substantially improve the home securing the loan, per current IRS rules. Reverse mortgage interest is generally not deductible until the loan is repaid, since no interest is actually paid until then.

This is educational information, not financial or tax advice. Talk to a HUD-approved reverse mortgage counselor and a CPA before deciding between a reverse mortgage and a HELOC.