Reverse mortgage vs cash-out refinance

A cash-out refinance replaces the existing mortgage with a larger one and requires monthly principal-and-interest payments; a HECM reverse mortgage adds a loan that pays the borrower and accrues a balance with no required monthly payment (24 CFR §206.27).

A cash-out refinance replaces the existing mortgage with a larger one and hands the difference to the borrower at closing. A HECM reverse mortgage adds a new loan that pays the borrower and accrues a balance with no required monthly payment. Both pull cash out of the house; they qualify the borrower in opposite ways and they carry opposite payment obligations. The matrix sets them side by side, each cell sourced.

Last reviewed 2026-05-22

How do a reverse mortgage and a cash-out refinance compare side by side?

| Dimension | HECM reverse mortgage | Cash-out refinance | |---|---|---| | Minimum age | 62 for the youngest borrower (24 CFR §206.33) | No federal minimum; standard first-lien underwriting applies | | How the lender qualifies you | Financial Assessment of capacity to pay taxes and insurance; no minimum credit score (HUD Handbook 4000.1 §II.B.7) | Income, credit, and debt-to-income on a first-lien standard (CFPB Mortgage Refinance Guide) | | Required monthly payment | None while the borrower occupies the home and stays current on taxes and insurance (24 CFR §206.27) | Fixed principal-and-interest payment on the new, larger mortgage | | Repayment trigger | Last borrower's death, sale, 12-month non-occupancy, or tax/insurance default (24 CFR §206.27) | Scheduled amortization, typically over a new 15- or 30-year term | | Rate type | Adjustable or fixed; fixed is lump-sum only (HUD ML 2014-11) | Fixed or adjustable, set at closing (CFPB) | | Mortgage insurance | 2% upfront FHA MIP + 0.5% annual MIP on the balance (24 CFR §206.105) | None on a conventional refinance; FHA refinances carry their own MIP | | 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 the mortgage in most states | | Closing costs | Typically 3–6% of home value; origination capped at $6,000 (24 CFR §206.31) | Typically 2–6% of the new loan amount (CFPB) | | Effect on heirs | Balance plus interest and MIP comes out of sale proceeds; heirs may keep the home by paying the lesser of balance or 95% of value (HUD ML 2015-10) | The new, larger balance comes out of sale proceeds; heirs assume payments or refinance to keep the home | | Counseling | HUD-approved counseling required before application (24 CFR §206.41) | No federal counseling requirement |

When does a cash-out refinance fit?

A cash-out refinance works for a borrower with documentable income who can carry a larger monthly payment and qualifies on credit and debt-to-income. Over a horizon of roughly ten years it usually costs less in total than a HECM, because there is no MIP on a conventional refinance and the rate on a well-qualified first lien is competitive. It can also lower the rate on the existing balance if market rates have fallen since the original loan. The hard requirement is income. The CFPB's refinance guidance is explicit that first-lien underwriting turns on the ability to repay, and a retired borrower without employment income often cannot clear that bar regardless of how much equity the house holds.

When does a reverse mortgage fit?

A HECM fits the borrower a cash-out refinance shuts out: retired, equity-rich, and short on the qualifying income a first-lien refinance demands. It removes the monthly payment instead of enlarging it, which matters when the monthly budget is the constraint. It also fits a borrower who wants the loan to run for life rather than amortize to a fixed end date. The cost is real: 3–6% in closing costs, the 2% upfront and 0.5% annual MIP, and a balance that compounds. The reverse mortgage pros and cons guide lays out each line.

When does neither a reverse mortgage nor a cash-out refinance fit?

A borrower with income who plans to sell within a few years may find a HELOC or a home equity loan cheaper than either option here. A borrower whose only need is the property-tax bill should look at a state deferral program. The alternatives guide covers both.

How do you choose between a reverse mortgage and a cash-out refinance?

The row order is not a ranking. The qualification row is decisive for a retired borrower with no employment income, since it can rule a cash-out refinance out before any cost comparison begins. For a borrower who qualifies for both, the closing-cost and payment rows carry the most weight. Model both paths in the reverse mortgage calculator.

Related comparisons

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

• Reverse mortgage vs refinance
• Reverse mortgage vs keeping your mortgage
• HECM vs HELOC

The full set is on the comparisons hub.

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