Reverse Mortgage vs. HELOC—Which One Makes More Sense?

If you’re a homeowner looking to tap into your home equity, you’ve likely come across two popular options: the reverse mortgage and the Home Equity Line of Credit (HELOC). While both allow you to access your home’s value without selling, they’re built for different needs and financial strategies.

In this guide, we’ll break down the pros, cons, and key differences between reverse mortgages and HELOCs—so you can make the smartest choice for your future.

What Is a Reverse Mortgage?

A reverse mortgage is a loan available to homeowners aged 62 or older, allowing them to convert a portion of their home equity into cash. Unlike traditional loans, you don’t make monthly payments—the loan is repaid when you move out, sell the home, or pass away.

✅ Pros of Reverse Mortgages:

• No monthly payments required
• Can supplement retirement income
• You stay in your home
• Proceeds are tax-free
• Flexible payment options (lump sum, monthly, line of credit)

⚠️ Cons:

• Reduces your home equity over time
• Fees and closing costs can be high
• Must maintain property taxes, insurance, and upkeep
• May affect inheritance

What Is a HELOC?

A Home Equity Line of Credit (HELOC) is a revolving credit line based on your home’s equity. You borrow only what you need—when you need it—during a draw period (typically 5–10 years). You make monthly payments on interest, and later, on principal.

✅ Pros of HELOCs:

• Only pay interest on what you use
• Lower upfront costs than reverse mortgages
• Access funds as needed
• Great for short-term needs or renovations

⚠️ Cons:

• Requires monthly payments (can increase later)
• Variable interest rates
• Risk of foreclosure if you can’t repay
• Usually requires good credit and income

Key Differences: Reverse Mortgage vs. HELOC

When a Reverse Mortgage Makes More Sense

Consider a reverse mortgage if:

• You’re 62 or older and retired
• You need steady income or a financial cushion
• You want to age in place without monthly payments
• You don’t plan to leave the home to heirs
• You need long-term access to equity without a repayment burden

Use Cases:

• Supplementing Social Security or pension
• Paying off existing mortgage
• Covering healthcare or in-home care costs
• Avoiding dipping into retirement savings

When a HELOC Makes More Sense

A HELOC is ideal if:

• You’re still working or have stable income
• You need flexible funds for short-term use
• You’re under 62 or not eligible for a reverse mortgage
• You can manage monthly payments
• You want a cost-effective way to finance home improvements

Use Cases:

• Renovations or repairs
• Emergency funds
• College tuition
• Debt consolidation

Reverse Mortgage vs. HELOC: Which Costs More?

• Reverse mortgages often have higher upfront fees, including mortgage insurance.
• HELOCs are cheaper to set up, but monthly payments can rise with interest rates.

Both can have closing costs, but HELOCs typically carry fewer fees. However, if you’re not planning to repay monthly, reverse mortgages offer greater flexibility.

How Equity Is Impacted

• With a reverse mortgage, your loan balance grows over time, shrinking your home equity.
• With a HELOC, your equity only decreases when you borrow—and you can pay it back to restore it.

If protecting long-term equity or leaving a home to heirs is important to you, this could be a deciding factor.

Final Thoughts: Choosing the Right Option

Choosing between a reverse mortgage and a HELOC depends on your age, financial needs, risk tolerance, and long-term goals. Ask yourself:

• Do I need monthly payments or flexible cash access?
• Can I handle monthly payments now and in the future?
• Am I looking for income in retirement—or a short-term cash solution?
• Do I want to preserve equity for inheritance?

At Estar Mortgage, we specialize in helping you understand and compare all your options—so you can unlock your home equity with confidence.

Still not sure which is right for you?
Let our team guide you to the best fit—tailored to your life and goals.