Reverse Mortgages vs. HELOCs vs. Home Equity Loans: Which Option Is Best for You?

Choosing between a reverse mortgage, HELOC, or home equity loan might feel unclear, especially when each option offers unique benefits and drawbacks. A HELOC provides flexible, on-demand access to your home equity but comes with variable rates that could climb over time.

Home equity loans offer a predictable fixed rate but require immediate repayment, which isn’t always ideal for retirees. Reverse mortgages, on the other hand, cater exclusively to homeowners aged 62 or older, allowing them to access equity without monthly payments—but they can be expensive and reduce your home equity over time.

For younger borrowers or those with stable incomes, a HELOC or home equity loan may be a better fit, especially for planned expenses. For retirees seeking to supplement their income without adding a monthly bill, a reverse mortgage might be worth considering. We’ll explore these options in depth, helping you make an informed decision based on your financial goals, age, and equity needs.

Table of Contents

1. Differences
2. Eligibility
3. How HELOCs work
4. How home equity loans work
5. How reverse mortgages work
6. How to choose
7. Long-term impacts
8. FAQ

Differences between HELOCs, home equity loans, and reverse mortgages

HELOCs, home equity loans, and reverse mortgages offer unique ways to access your home equity, but each serves different needs. HELOCs and home equity loans are better for younger, creditworthy borrowers with stable incomes, while reverse mortgages cater to seniors seeking cash flow without monthly payments.

A HELOC’s flexibility makes it ideal for intermittent expenses, such as home renovations, but variable rates can lead to unpredictable costs. A home equity loan provides a lump sum and fixed payments, making it easier to budget but less flexible. Reverse mortgages, meanwhile, eliminate monthly payments but reduce equity over time, which could affect your heirs.

Here’s how HELOCs, home equity loans (HE loan), and reverse mortgages (RM) differ:

Detail	HELOC	HE loan	RM
Avg. rate	8.27%*	8.43%*	7.75% fixed; 6.87% adj.*
Typical rate type	Variable	Fixed	Both
Typical terms	10 – 20 years	5 – 30 years	Due after you die or move
Typical amounts	85% of home value**	85% of home value**	40% – 60% of home value
Funding time	2 wks. – 2 mos.	2 wks. – 2 mos.	Up to 45 days

How do the different types of reverse mortgages compare to a HELOC?

When considering a reverse mortgage, it’s important to understand the different types. The most common is the home equity conversion mortgage (HECM), which is insured by the Federal Housing Administration (FHA). You can also get a proprietary reverse mortgage (offered by private lenders) and single-purpose reverse mortgage, which is often limited to specific uses, such as home repairs or taxes.

While HECMs have federal backing and broad availability, proprietary reverse mortgages may offer higher loan amounts, and single-purpose reverse mortgages typically come with lower fees but stricter use cases.

Below is a table comparing these reverse mortgage types to HELOCs:

HECM	Prop. RM	Single-purpose RM	HELOC
40% – 60% LTV allowed	Higher allowed LTV than HECM	Lower allowed LTV than HECM	Up to 85% LTV allowed
Must be age 62+	62+	62+	No age req.
Fixed or variable rates	Fixed or variable	Fixed (in most cases)	Variable (in most cases)
No monthly payments	No mo. pmts.	No mo. pmts.	Monthly pmts. required (interest + principal)
Up to 45 days to fund	Up to 45 days	Funding time varies (often longer)	Avg. 2 weeks to fund
Higher fees (orig., MIP)	Higher fees	Lower fees	Moderate fees (closing, appraisal)

How do HELOCs compare to these reverse mortgages?

• HECMs vs. HELOCs: HECMs are a better fit for seniors who want a flexible income stream without monthly payments. However, HELOCs may be more suitable for borrowers of any age looking for short-term access to equity with lower fees.
• Proprietary reverse mortgages vs. HELOCs: Proprietary options might be ideal for high-value homes that exceed HECM limits, but they often come with higher costs. HELOCs offer more transparency and lower upfront expenses.
• Single-purpose reverse mortgages vs. HELOCs: Single-purpose reverse mortgages can benefit low-income seniors with specific financial needs. In contrast, HELOCs offer broader financial flexibility but require monthly payments.

Eligibility for HELOCs, home equity loans, and reverse mortgages

Eligibility varies between these products. Reverse mortgages are the most accessible, requiring no credit check or income verification—but they’re restricted to seniors aged 62 and older. In contrast, HELOCs and home equity loans require strong credit (often 620 or higher), stable incomes, and manageable debt-to-income ratios (DTI).

For borrowers with poor credit, reverse mortgages may seem appealing, but they come with higher costs and reduced equity. Younger homeowners, on the other hand, will likely find HELOCs or home equity loans more cost-effective despite stricter requirements.

Detail	HELOC & HE loan	Reverse mortgage
Min. credit score	620 – 680	None
Max. DTI	43% – 50%	None
Max. LTV	85%	40% – 60%
Property type	Primary residences, vacation homes, or investment properties	Primary residences
Borrower age	No age requirements	At least 62 years old

How HELOCs work

A HELOC provides a flexible way to borrow against your home equity, functioning like a credit card secured by your property. It’s ideal for borrowers who need ongoing access to funds for home renovations or debt consolidation. However, variable rates mean your payments could rise unexpectedly, which may not suit all borrowers.

Compared to reverse mortgages, HELOCs are better for younger homeowners who can manage monthly payments and want to maintain home equity. But if you prefer fixed costs, a home equity loan might be a better fit.

Read More

The 10 Pros and Cons of HELOCs

How home equity loans work

A home equity loan provides a lump sum of money that you borrow against your home’s equity. Unlike a HELOC, which functions like a credit card, a home equity loan comes with fixed monthly payments and a set interest rate. This predictability makes it an excellent choice for borrowers who need a large, one-time expense covered, such as a major home renovation or debt consolidation.

The loan amount is based on your equity—typically up to 85% of your home’s value, minus your current mortgage balance. You’ll repay the loan in fixed installments over five to 30 years, depending on your lender and terms.

A home equity loan is often a better choice than a HELOC or reverse mortgage for borrowers who want a straightforward loan with fixed terms and are comfortable with monthly payments. However, it’s less suitable for those needing ongoing access to funds or who prefer not to make monthly payments, as with a reverse mortgage.

Read More

The 17 Pros and Cons of Home Equity Loans

I recommend HELOCs and home equity loans to younger clients who need to access a larger sum for renovations to their homes and who have the ability to service the extra loan payment each month.

How reverse mortgages work

Reverse mortgages let seniors aged 62 and older tap into home equity without monthly payments, making them a lifeline for retirees needing extra income. However, interest accrues over time, eroding your equity and potentially leaving less for your heirs.

Compared to HELOCs, reverse mortgages are a better option for retirees who can’t afford monthly payments. But they come with higher fees and long-term equity loss, which may outweigh the benefits if you don’t plan to stay in your home for many years.

Read More

The 10 Main Pros and Cons of Reverse Mortgages

As a financial planner, I would only speak about reverse mortgages to those senior clients who are house-rich but cash-poor. A reverse mortgage allows them to stay in their home and receive an income stream.

How to choose between HELOCs, home equity loans, and reverse mortgages

If you…	Which is best?
Are under 62 years old	HELOC or home equity loan
Are retired with no mortgage or a low loan balance	Reverse mortgage
Are retired with 15% equity or more	HELOC or home equity loan
Want to supplement your retirement income	Reverse mortgage
Prefer not having monthly payments	Reverse mortgage

Choosing between these products depends on your goals and financial situation.

• If you’re considering a HELOC, Figure stands out as the best option due to its fast funding and transparent process. With approval in minutes and funds available in as little as five days, Figure is ideal for homeowners who prioritize speed and convenience. See more about the highest-rated HELOCs.
• For those leaning toward a home equity loan, view our list of the best home equity loans.
• Seniors exploring reverse mortgages should consider Longbridge Financial, which provides a personalized experience tailored to individual needs. Its competitive terms and excellent customer service ratings make it a strong choice for retirees seeking affordable and accessible reverse mortgage options. Check out our picks for the best reverse mortgage lenders.

Read More

How to Borrow Against Your Pension [and Best Alternatives]

Long-term impacts: HELOC and home equity loan vs. reverse mortgage

HELOCs and home equity loans allow you to repay what you borrow and rebuild equity over time, making them better options for homeowners prioritizing financial legacy. Reverse mortgages, by contrast, reduce your equity with each payout, potentially leaving heirs with little or no inheritance.

While a reverse mortgage provides immediate relief for retirees, it often results in higher long-term costs and reduced financial flexibility. HELOCs or home equity loans may be better for those who want to preserve equity while accessing funds.

FAQ

Can I take out a reverse mortgage and a HELOC at the same time?

It’s possible to take out a HELOC and a reverse mortgage at the same time. However, qualifying for a reverse mortgage can be challenging if you have a HELOC with a substantial balance. 

Once you obtain a reverse mortgage, your lender may restrict you from taking further draws on the HELOC. The lender wants to ensure you have sufficient equity in your home to secure the reverse mortgage, reducing the risk associated with the loan.

Can I take a HELOC and home equity loan out at the same time?

You may be able to take out a HELOC and a home equity loan if you show your lender why you need both loans. The maximum amount you can borrow will include the commitment on both loans and your current mortgage balance, potentially limiting the loan amount.

Instead of taking out both products, consider getting a HELOC and paying more than the minimum. This option is more practical, providing flexibility with fewer obligations to manage, simplifying your finances, and making it easier to keep track of your payments.

Can I take a home equity loan and a reverse mortgage out at the same time?

It’s possible to take out a home equity loan and a reverse mortgage at the same time, but it might not make sense. You typically need significant equity to qualify for a reverse mortgage. Qualifying for a reverse mortgage could be more challenging if you also have a home equity loan.

How do these options affect my credit score?

A reverse mortgage usually doesn’t affect your credit score because most reverse mortgage companies don’t report to the national credit bureaus. Applying for a HELOC or home equity loan could lower your credit score by up to five points. 

Repaying the HELOC or home equity loan on time can help you improve your credit score, while late payments can harm it.

Are there restrictions on how I can use the funds from a reverse mortgage, HELOC, or home equity loan?

You can use HELOC or home equity loan funds for almost any purpose. Most lenders don’t impose restrictions. You can use a reverse mortgage for just about anything too, but some states offer single-purpose reverse mortgages you can only use for taxes or home improvement projects.

How does the economic environment affect HELOC or home equity loan interest rates or reverse mortgage terms?

When the Federal Reserve increases benchmark rates, it drives up the average annual percentage rates (APRs) of HELOCs, home equity loans, and reverse mortgages. In addition, higher rates tend to reduce the amount you can borrow with all three financial products.

What is the 60% rule of a reverse mortgage?

What’s referred to as the “60% rule” in reverse mortgages relates to the initial amount the borrower can receive in the first year. In the first year of an HECM (a type of reverse mortgage), the borrower can’t receive more than 60% of the loan amount.