HECM vs HELOC: The Reverse Mortgage and Home Equity Line Compared

A HECM is an FHA-insured first-lien reverse mortgage with no required monthly payment while the borrower lives in the home; a HELOC is a revolving second-mortgage line of credit that requires monthly payments from the day it is drawn. The HECM needs the youngest borrower to be 62, costs more to open (3–6% of home value versus near zero), and grows its unused credit line at the loan's note rate plus 0.5% (24 CFR §206.25). The HELOC opens cheaply, has no age floor, and keeps the borrower personally liable for any shortfall. The two get compared because both can be set up as a credit line, but they accrue, repay, and end on different rules.

Last reviewed 2026-06-01

A HECM is the Home Equity Conversion Mortgage, the federally insured reverse mortgage that more than 90% of reverse-mortgage borrowers use (CFPB, Reverse Mortgages). A HELOC is a home equity line of credit, a revolving second mortgage offered by ordinary banks and credit unions. Both let an owner borrow against the equity in a home they keep living in, and both can be drawn over time rather than all at once. That shared shape is where the resemblance ends. The matrix below sets them on the same dimensions, each cell sourced; the prose after it explains who each suits and where the real cost difference sits.

How do a HECM and a HELOC compare side by side?

| Dimension | HECM | HELOC | |---|---|---| | Product type | FHA-insured first-lien reverse mortgage (24 CFR §206) | Revolving second-mortgage line of credit (CFPB What You Should Know About HELOCs) | | Minimum age | 62 for the youngest borrower (24 CFR §206.33) | No federal minimum; lender underwriting applies | | Required monthly payment | None while the borrower occupies the home and stays current on taxes and insurance (24 CFR §206.27) | Interest-only or principal-and-interest payments during the draw period, then full amortization in the repayment period (CFPB) | | How the credit line behaves | The unused HECM line grows over time at the note rate plus the 0.5% MIP rate (24 CFR §206.25) | The unused HELOC line does not grow; the lender may freeze or reduce it at its discretion (CFPB) | | Term | Open-ended; runs for the borrower's life in the home (24 CFR §206.27) | Draw period of about 10 years plus a repayment period of about 20 years (CFPB) | | Credit-score requirement | No minimum score; a Financial Assessment checks capacity to pay taxes and insurance (HUD Handbook 4000.1 §II.B.7) | Typically a 620–680 minimum, with the rate tiered to the score | | Rate type | Adjustable or fixed; fixed is lump-sum only (HUD ML 2014-11) | Usually variable, indexed to prime (CFPB) | | Mortgage insurance | 2% upfront FHA MIP + 0.5% annual MIP on the balance (24 CFR §206.105) | None | | Non-recourse | Yes; borrower or heirs owe the lesser of the balance or 95% of appraised value (24 CFR §206.125) | No; the borrower stays personally liable for any shortfall | | Closing costs | Typically 3–6% of home value; origination capped at $6,000 (24 CFR §206.31) | Typically $0–$1,500 (CFPB) | | Counseling | HUD-approved counseling required before application (24 CFR §206.41) | No federal counseling requirement | | Repayment trigger | Borrower dies, sells, or moves out for 12+ months, or defaults on taxes/insurance (24 CFR §206.27) | Scheduled monthly payments; balance due at end of repayment period |

How do HECM and HELOC payments differ?

The first row most borrowers weigh is the monthly payment, and it carries more than convenience. A HELOC requires payments from the start. During the draw period those payments are often interest-only, which keeps them low; when the repayment period begins, the balance amortizes over the remaining term and the payment can climb sharply. The CFPB's complaint data flags this draw-to-repayment shift as a recurring source of payment shock: an interest-only payment in year five can more than triple when full amortization starts in year eleven (CFPB What You Should Know About HELOCs). A borrower on a fixed retirement income who cannot absorb that jump is exposed.

A HECM has no required monthly payment for as long as the borrower lives in the home and keeps property taxes and homeowners insurance current. That is the structural feature retirees come for. The trade is that the loan balance grows instead of shrinking: interest and the 0.5% annual MIP accrue on the drawn amount every month and are added to what is owed. Nothing is due until a maturity event, but the debt compounds the whole time. The payment a HELOC borrower makes is the same payment a HECM borrower defers, plus insurance, with the bill arriving at the end.

Which costs more to open, a HECM or a HELOC?

The two products are not close on upfront cost. A HELOC is cheap to open: the CFPB puts typical HELOC closing costs at $0 to roughly $1,500, and some lenders waive them entirely. A HECM is expensive to open. On a $400,000 home the costs typically run 3–6% of value, which is $12,000 to $24,000, and the largest line items are federal:

| Cost | HECM | HELOC | |---|---|---| | Upfront mortgage insurance | 2% of the home value or lending limit, whichever is less ($8,000 on a $400,000 home) (24 CFR §206.105) | None | | Annual mortgage insurance | 0.5% of the loan balance per year, accrued (24 CFR §206.105) | None | | Origination fee | Capped by HUD formula at $6,000 (24 CFR §206.31) | Often $0; sometimes a small application or annual fee | | Counseling | A HUD-approved session, roughly $125–$200 (24 CFR §206.41) | Not required | | Third-party fees | Appraisal, title, recording: roughly $2,000–$4,000 | Usually folded into the lender's low or zero closing cost |

The HECM's cost makes sense only across a long horizon. A borrower who opens the loan, uses it for fifteen years, and never makes a payment has spread that upfront cost over a long time and bought a payment-free, non-recourse, growing line. A borrower who opens a HECM and sells two years later has paid thousands in MIP and origination for very little use. The closing-cost detail, item by item, is in the reverse mortgage closing costs guide.

Does the HECM credit line grow when a HELOC's does not?

The most consequential difference is invisible on a cost sheet. The unused portion of a HECM line of credit grows over time at the loan's note rate plus the 0.5% annual MIP rate (24 CFR §206.25). A HELOC line does not grow, and the lender can freeze or cut it. During the 2008 housing downturn, lenders froze and reduced HELOC lines en masse, leaving borrowers who were counting on that credit without access to it. A HECM line cannot be frozen for that reason; the growth is contractual.

The compounding matters most for a borrower who opens a line early and draws late. Suppose a 65-year-old opens a HECM line of credit and draws nothing for fifteen years while the note rate plus MIP runs near 7%. The available credit grows the entire time, so the line they can draw at 80 is materially larger than the one they opened at 65 — without the borrower doing anything. A HELOC opened at 65 offers the same dollar amount at 80, if the lender has not reduced it. The full mechanics of that growth are in the reverse mortgage line of credit guide.

Who owes the shortfall on a HECM versus a HELOC?

A HECM is non-recourse. When the loan comes due and the home is sold, the borrower or the heirs owe the lesser of the loan balance or 95% of the appraised value (24 CFR §206.125). If the balance has grown past what the home is worth, FHA insurance covers the gap and no one chases the estate for the difference. The 2% upfront and 0.5% annual MIP are what pays for that protection.

A HELOC is recourse. The borrower stays personally liable for the full balance. If the home sells for less than what is owed across the first mortgage and the HELOC, the lender can pursue the borrower for the shortfall. For a borrower whose plan depends on the home covering the debt, that difference in who carries the downside risk is not a footnote.

When does a HELOC fit?

A HELOC fits a borrower with the cash flow to make payments and the credit profile to qualify for a good rate tier. Its low or zero closing cost is the headline advantage, and for a short, defined need — a renovation, a known medical bill, a bridge to a planned sale — it can be opened, drawn, repaid, and closed cheaply. It also has no age floor, so a 55-year-old who would not qualify for a HECM can use one. The risk to weigh is the repayment-period payment shock and the lender's right to freeze the line.

When does a HECM fit?

A HECM fits a borrower 62 or older whose monthly budget is the constraint and whose horizon is long. There is no required payment, so a borrower whose income could not cover a HELOC payment can still draw on the home. The growth feature and the non-recourse cap are the structural advantages, and they compound over years. The costs are real: the upfront and annual MIP, 3–6% in closing costs, and a balance that grows rather than shrinks. The case for a HECM strengthens the longer the borrower expects to stay and the less able they are to make a monthly payment.

When does neither a HECM nor a HELOC fit?

A borrower planning to leave the home within a few years may not recover the HECM's upfront cost, and a borrower without cash flow carries real foreclosure exposure on a HELOC if they cannot make the payment. Selling, downsizing, or a home-equity loan may serve better. The alternatives to a reverse mortgage guide covers the remaining options, and the three-way comparison with a home equity loan is in the reverse mortgage vs HELOC guide.

Who a reverse mortgage is wrong for

A HECM is usually the wrong side of this comparison in three situations. Each describes a pattern where the loan's own costs or rules work against the homeowner's goal; none is advice about a specific borrower.

A homeowner who plans to leave the home within roughly three to five years. The HECM's 3–6%-of-value upfront cost is spread over the time in the home, so a short stay rarely recovers it; a HELOC's near-zero opening cost makes it the cheaper way to hold a short-horizon line.

A homeowner whose estate plan depends on the home passing to heirs free and clear. The HECM balance, plus interest and the 0.5% annual MIP, comes out of eventual sale proceeds (24 CFR §206.125), which a HELOC paid down on schedule does not do.

A homeowner under 62, or one who can comfortably service a monthly payment and simply wants the cheapest credit line. The HECM's statutory age floor is 62, and its structure is built around removing the monthly payment; a borrower who does not need that and can qualify on income usually pays less with a HELOC.

How do you choose between a HECM and a HELOC?

The row order is not a ranking. A borrower with no monthly cash flow weights the payment row first; a borrower holding a credit line for years without drawing weights the line-growth row first; a borrower with a short payoff plan weights closing costs; a borrower worried about leaving debt to heirs weights the non-recourse row. Run your own numbers in the reverse mortgage calculator before deciding which mechanic governs your case.

Related comparisons

Other reverse-mortgage comparisons that bear on the same decision:

• Reverse mortgage vs home equity loan
• Reverse mortgage vs line of credit
• Reverse mortgage vs cash-out refinance

The full set is on the comparisons hub.

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