Reverse mortgage vs home equity loan

A HECM reverse mortgage pays the borrower and accrues a balance with no required monthly payment (24 CFR §206.27); a home equity loan hands over a lump sum at closing and requires a fixed monthly principal-and-interest payment from the first month.

Both products turn home equity into cash, and that is where the resemblance ends. A HECM reverse mortgage pays the borrower and accrues a balance with no required monthly payment. A home equity loan hands over a lump sum at closing and asks for a fixed monthly principal-and-interest payment from the first month. The matrix puts the two on the same dimensions, each cell sourced. The prose after it covers where each one fits.

Last reviewed 2026-05-22

How do a reverse mortgage and a home equity loan compare side by side?

| Dimension | HECM reverse mortgage | Home equity loan | |---|---|---| | Minimum age | 62 for the youngest borrower (24 CFR §206.33) | No federal minimum; lender underwriting applies | | What you receive | Lump sum, line of credit, or monthly tenure/term payments (24 CFR §206.19) | One lump sum at closing (FRB What You Should Know About Home Equity Lines of Credit) | | 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 owed monthly from month one | | Repayment trigger | Last borrower's death, sale, 12-month non-occupancy, or tax/insurance default (24 CFR §206.27) | Scheduled amortization over the loan term; full balance due at term end | | Rate type | Adjustable or fixed; fixed is lump-sum only (HUD ML 2014-11) | Fixed for the loan term (FRB) | | 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 after foreclosure | | Counseling | HUD-approved counseling required before application (24 CFR §206.41) | No federal counseling requirement | | Closing costs | Typically 3–6% of home value; origination capped at $6,000 (24 CFR §206.31) | Typically 2–5% of the 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) | Outstanding balance comes out of sale proceeds; heirs assume payments or refinance to keep the home | | Foreclosure risk | Tied to occupancy and tax/insurance status, not to a monthly payment | Missed monthly payments can trigger foreclosure like any second mortgage |

When does a home equity loan fit?

A home equity loan suits a borrower who knows the exact amount needed and has the monthly cash flow to service a fixed payment. Predictability is the draw: the rate, the payment, and the term are all set at closing, so there is no draw-period-to-repayment-period shift and no rate movement to track. It also suits a borrower under 62, since a HECM is closed to them on age grounds. The constraint is the monthly obligation. A retired borrower whose income is fixed Social Security and a pension may not clear the lender's debt-to-income test, and a payment that fits the budget at closing still has to fit it a decade later.

When does a reverse mortgage fit?

A HECM fits when monthly cash flow is the binding constraint. A borrower who cannot add a fixed monthly payment to the budget cannot use a home equity loan no matter how much equity sits in the house; the HECM removes that requirement entirely as long as occupancy, taxes, and insurance stay current. It also fits a long horizon. A home equity loan amortizes to a hard end date; a HECM is structured to run for the borrower's life in the home. The trade is cost and a growing balance: 3–6% in closing costs, the 0.5% annual MIP, and interest that compounds whether or not the borrower draws. The full cost picture is in the reverse mortgage downsides guide.

When does neither a reverse mortgage nor a home equity loan fit?

A borrower planning to leave within five to ten years rarely recovers the HECM's upfront costs. A borrower without monthly cash flow carries real foreclosure exposure on a home equity loan. For those cases the alternatives guide covers downsizing, family loans, and state property-tax deferral.

How do you choose between a reverse mortgage and a home equity loan?

The row order is not a ranking. Weight depends on the borrower's binding constraint: no cash flow puts the payment row first, a short stay puts closing costs first, a focus on heirs puts the recourse and inheritance rows first. Run your own numbers through the reverse mortgage calculator, then read the rows that apply.

Related comparisons

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

• HECM vs HELOC
• Reverse mortgage vs line of credit
• Reverse mortgage vs home equity investment

The full set is on the comparisons hub.

FAQ