HELOC vs Reverse Mortgage: Which Is Better for Seniors?

If you're 62 or older with significant home equity, you've probably heard about both HELOCs and reverse mortgages. Both let you access your home's value. But they work completely differently—and the choice between them could affect your finances and your family for decades.

Here's the honest comparison to help you decide.

Quick Comparison

What Is a HELOC?

A HELOC (Home Equity Line of Credit) is a revolving credit line secured by your home. You borrow what you need, pay interest on what you use, and make monthly payments.

How payments work:

• During the draw period (5-10 years): Interest-only payments required
• During repayment period (10-20 years): Principal + interest payments required

Key point: You must make monthly payments. Miss them and you risk foreclosure.

What Is a Reverse Mortgage?

A reverse mortgage (usually an HECM—Home Equity Conversion Mortgage, insured by FHA) lets homeowners 62+ convert equity to cash without monthly payments.

How it works:

• You receive money (lump sum, line of credit, or monthly payments)
• Interest accrues on what you borrow
• Balance grows over time
• Loan comes due when you sell, move out, or pass away

Key point: No monthly payments required. But your loan balance gets bigger, not smaller.

The Generational Wealth Question

Here's the core trade-off most articles won't state plainly:

HELOC = Preserve equity for heirs You make payments, your balance decreases, your equity grows. When you pass, your home goes to your heirs with equity intact.

Reverse mortgage = Consume equity over time No payments, but interest compounds. After 10-15 years, you may owe more than half your home's value. Your heirs may need to sell the home to repay the loan.

Neither choice is wrong. But you need to decide: Is preserving wealth for your children a priority? Or is maximizing your own retirement comfort the goal?

Cost Comparison

HELOC Costs

• Closing costs: Often waived or $0-2,500
• Interest rate: Prime + 0-2% (currently around 8-10%)
• Annual fee: $0-100
• Early termination fee: $0-500 if closed within 2-3 years

Reverse Mortgage Costs

• Origination fee: Up to $6,000 (2% on first $200K + 1% after)
• Mortgage insurance premium (MIP): 2% upfront + 0.5% annually
• Closing costs: $2,000-5,000 (appraisal, title, etc.)
• Servicing fee: $0-35/month
• Total upfront: Often $8,000-15,000+

Reverse mortgages are significantly more expensive to set up. These costs get rolled into your loan balance, starting the compound interest clock immediately.

When to Choose a HELOC

A HELOC makes more sense if:

You Can Afford Monthly Payments

If your retirement income covers your expenses plus HELOC payments, you get the benefit of lower costs and preserved equity.

You Want to Preserve Equity

If leaving your home (or home equity) to children is important, HELOC keeps your ownership stake growing.

You're Under 62

You can't get a reverse mortgage. HELOC is your main option for accessing equity.

You Have a Short-Term Need

Need $30,000 for home repairs? A HELOC lets you borrow, pay it back, and be done. A reverse mortgage is a 30-year commitment.

You Might Move

Planning to downsize in 5-7 years? A HELOC gives you flexibility. Reverse mortgages come with higher upfront costs that you'd need to recoup over time.

When to Choose a Reverse Mortgage

A reverse mortgage makes more sense if:

Fixed Income Can't Support Payments

If Social Security and pension barely cover basics, adding a HELOC payment might be impossible. A reverse mortgage provides cash without monthly obligations.

You Plan to Stay Until Passing

If you're 75, love your home, and plan to die there, the high upfront costs amortize over your remaining years.

No Heirs or Heirs Don't Need Inheritance

If you have no children or your children are financially secure, consuming equity for your own comfort is reasonable.

You Need Guaranteed Income

Some reverse mortgages provide monthly payments for life—a form of longevity insurance that a HELOC can't match.

Cash Flow Is the Priority

If the choice is "maintain lifestyle" vs "preserve equity," and you choose lifestyle, reverse mortgage delivers.

The Hybrid Approach

Some financial advisors suggest a sequence:

1. Ages 62-75: Use a HELOC for flexibility and preservation
2. Ages 75+: Consider a reverse mortgage if income needs change

This approach:

• Delays the expensive reverse mortgage setup costs
• Uses HELOC during years when you're more likely to have income
• Switches to reverse mortgage when cash flow becomes harder

Running the Numbers

Example: HELOC at Age 65

• Home value: $500,000
• HELOC borrowed: $100,000
• Interest rate: 8.5%
• Monthly interest-only payment: ~$708

Over 15 years, if you make interest-only payments:

• Total interest paid: ~$127,500
• Balance still owed: $100,000
• Home equity remaining: $400,000 (assuming no appreciation)

Example: Reverse Mortgage at Age 65

• Home value: $500,000
• Principal limit (amount available): ~$225,000 (varies by age/rates)
• You take $100,000 upfront
• Interest rate: 6.5%
• Upfront costs rolled in: $12,000

After 15 years (age 80):

• Loan balance: ~$290,000 (compound interest on $112K start)
• Home equity remaining: $210,000 (assuming no appreciation)

The trade-off: With HELOC, you paid ~$127K but kept $400K equity. With reverse mortgage, you paid $0 monthly but equity dropped to $210K.

Required Counseling

One important difference: Reverse mortgages require HUD-approved counseling before you can close. This isn't optional—it's federal law.

The counseling covers:

• How reverse mortgages work
• Costs and alternatives
• Impact on heirs and government benefits

There's no such requirement for HELOCs. Consider doing your own research—or talk to a fee-only financial advisor—before getting a HELOC.

Frequently Asked Questions

Can I have both a HELOC and a reverse mortgage?

Generally no. A reverse mortgage needs to be the only loan on your home (or in first lien position). You'd typically need to pay off a HELOC before getting a reverse mortgage.

What happens to a reverse mortgage when I die?

Your heirs can sell the home and keep any equity above the loan balance. If the loan exceeds the home value, FHA insurance covers the difference—heirs don't owe more than the home is worth.

Can I lose my home with a reverse mortgage?

Yes. You must pay property taxes, homeowner's insurance, and maintain the home. Fail to do so and you can face foreclosure.

Is a reverse mortgage a last resort?

Not necessarily. For the right situation (stable income needs, plans to age in place, no concern about inheritance), it's a valid financial tool. But the high costs mean it's rarely the best choice for short-term needs.

The Bottom Line

Choose HELOC if: You can afford payments, want to preserve equity, have a short-term need, or might move.

Choose reverse mortgage if: You can't afford monthly payments, plan to stay in the home for life, and prioritize cash flow over inheritance.

Both tools access your home equity. Only one preserves it for the next generation. Make sure you're choosing based on your actual priorities—not just what sounds easier today.

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Want to explore your equity options? Talk to HonestCasa for an honest assessment of what makes sense for your situation.