Reverse mortgage vs line of credit

A reverse mortgage can itself be paid out as a line of credit, so the real comparison is the HECM credit line against a HELOC: the unused HECM line grows over time at the note rate plus 0.5% (24 CFR §206.25), while a HELOC line does not grow and can be frozen by the lender.

The phrasing here trips people up, because a reverse mortgage can itself be a line of credit. A HECM can be paid out as a lump sum, as monthly payments, or as a line of credit the borrower draws from over time. So "reverse mortgage vs line of credit" is really two questions: how the HECM line of credit compares with a HELOC, the other common home-equity line. This page answers both, with a sourced matrix.

Last reviewed 2026-05-22

What are the two kinds of home-equity line of credit?

A HELOC is a revolving second mortgage. The borrower draws during a draw period and makes payments, then pays the balance down during a repayment period. A HECM line of credit is one of the payout options on a reverse mortgage: the borrower draws when they choose, makes no required payment, and the unused portion grows over time. Both are "lines of credit" against the home, and they behave differently enough that the choice is rarely close once a borrower knows which feature matters to them.

How do a reverse mortgage and a line of credit compare side by side?

| Dimension | HECM line of credit | HELOC | |---|---|---| | What it is | A payout option on an FHA-insured reverse mortgage (24 CFR §206.19) | A 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 during the draw period, then full amortization (CFPB) | | Does the unused line grow? | Yes; it grows at the note rate plus the 0.5% MIP rate (24 CFR §206.25) | No; the unused line is static | | Can the lender cut the line? | No; the HECM line is committed for the life of the loan | Yes; the lender may freeze or reduce the line 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) | | Rate type | Adjustable, indexed to CMT or SOFR plus a margin (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 |

When does a HELOC fit?

A HELOC fits a borrower who wants a low-cost line for a short, defined need and has the cash flow to service the payments. Its closing cost is a fraction of a HECM's, so for a borrower who will open, draw, repay, and close the line inside a few years, it is the cheaper instrument. The two structural weaknesses matter most over a long horizon: the unused line does not grow, and the lender can freeze or reduce it, which is exactly when a borrower planning to lean on the line years later is most exposed.

When does a HECM line of credit fit?

A HECM line of credit fits a borrower 62 or older who wants a standby line they can count on for the long run. The growth feature is the reason: the unused line grows year after year, so a line opened at 65 is larger at 80 without the borrower doing anything. The HECM line also cannot be frozen or cut by the lender once it is set up. There is no required payment. The cost is the upfront and annual MIP, 3–6% in closing, and a balance that grows on the drawn portion. Some borrowers open a HECM line of credit early specifically to lock in the growth and the guaranteed availability, then draw little or nothing for years.

When does neither a reverse mortgage nor a line of credit fit?

A borrower planning to leave the home within a few years may not recover the HECM's upfront cost. A borrower who needs a one-time lump sum, not a revolving line, should look at the HECM lump-sum option or a home equity loan instead. The alternatives guide covers the field, and the suitability index covers how the state changes the math.

How do you choose between a reverse mortgage and a line of credit?

The row order is not a ranking. The line-growth and lender-control rows usually decide the question: a borrower who wants a long-term, guaranteed standby line weights them heavily, while a borrower with a short, cheap need weights closing costs. Model the HECM line in the reverse mortgage calculator.

Related comparisons

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

• HECM vs HELOC
• Lump sum vs line of credit
• Reverse mortgage vs home equity loan

The full set is on the comparisons hub.

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