Reverse mortgage vs HELOC: a structured comparison

A reverse mortgage and a HELOC both convert home equity into spendable cash. They do it on different mechanics: a HECM accrues a growing balance with no required monthly payment; a HELOC draws against a revolving line with required monthly interest payments. A home equity loan sits between them: a one-time lump sum on a fixed amortization. The matrix below puts the three products on the same twelve rows, each sourced. Prose after the matrix explains where each fits and where it does not.

Last reviewed 2026-05-20

How do a HECM, HELOC, and home equity loan compare?

| Mechanic | HECM Reverse Mortgage | HELOC | Home Equity Loan | |---|---|---|---| | Cash-flow direction | Lender pays the borrower (lump sum, line of credit, monthly tenure, monthly term, or combination) per 24 CFR §206.19 | Borrower draws as needed from a revolving line during the draw period; interest-only or principal-plus-interest payments owed monthly (CFPB What You Should Know About HELOCs, 2024) | Borrower receives a one-time lump sum at closing; fixed monthly principal-plus-interest payments owed from month one (FRB What You Should Know About Home Equity Lines of Credit) | | Repayment trigger | Loan becomes due on the last borrower's death, sale, 12-month non-occupancy, or tax/insurance default (24 CFR §206.27) | Monthly payments throughout the draw period (typically 10 years), then full amortization or balloon during the repayment period (typically 20 years), per CFPB | Monthly amortizing payments over the fixed loan term (typically 5–30 years); full balance due at term end | | Credit-score requirement | No minimum credit score; lender runs a Financial Assessment of capacity to pay taxes and insurance (HUD Handbook 4000.1 §II.B.7) | Typically 620–680 minimum at most lenders; rate tiered to score per individual lender disclosure | Typically 620–680 minimum at most lenders; rate tiered to score | | Term | Open-ended; runs for the life of the borrower in the home, with no scheduled end date (24 CFR §206.27) | Draw period typically 10 years + repayment period typically 20 years = ~30 years total (CFPB) | Fixed term, typically 5 to 30 years (FRB) | | Occupancy maturity event | Borrower stops occupying the home as a principal residence for 12 consecutive months, triggering loan due (24 CFR §206.211) | Occupancy not a maturity event; the borrower may move and continue making payments | Occupancy not a maturity event; the borrower may move and continue making payments | | Rate type | HECM available as adjustable (monthly or annual) or fixed; the fixed-rate program is lump-sum only (HUD ML 2014-11) | Most HELOCs are variable, indexed to prime; some lenders offer fixed-rate conversion options on portions of the balance (FRB) | Fixed rate set at closing for the loan term (FRB) | | Mortgage insurance / PMI | Upfront FHA MIP of 2% of the Maximum Claim Amount + ongoing annual MIP of 0.5% on the outstanding balance (24 CFR §206.105) | No FHA MIP; no PMI (HELOCs are not first-lien purchase products) | No FHA MIP; no PMI | | Minimum age | 62 for HECM (the youngest borrower), per 24 CFR §206.33. Proprietary/jumbo reverse mortgages start at 55 in some states. | No federal minimum age; lender underwriting applies | No federal minimum age; lender underwriting applies | | Counseling requirement | HUD-approved counseling required before application by an independent third party (24 CFR §206.41) | No federal counseling requirement | No federal counseling requirement | | Non-recourse | Yes; borrower or heirs owe the lesser of the balance or 95% of appraised value at payoff (24 CFR §206.125) | No; borrower remains personally liable for any shortfall after foreclosure | No; borrower remains personally liable for any shortfall after foreclosure | | Effect on inheritance | Balance plus accrued interest and MIP comes out of sale proceeds; heirs may keep the home by paying the lesser of the balance or 95% of value (HUD ML 2015-10) | Outstanding balance comes out of sale proceeds; heirs assume payments or refinance if they keep the home | Outstanding balance comes out of sale proceeds; heirs assume payments or refinance if they keep the home | | Closing costs | Typically 3–6% of home value; origination capped at $6,000 (24 CFR §206.31), 2% upfront MIP, counseling $125–$250, appraisal, title, recording | Typically $0–$1,500; many lenders waive origination, though appraisal and title are often required (CFPB) | Typically 2–5% of loan amount; covers origination, appraisal, title, and recording (CFPB) |

When does a HELOC fit the situation?

Three conditions tend to point toward a HELOC over a reverse mortgage. First, the borrower has the monthly cash flow to make interest payments during the draw period and amortizing payments during the repayment period. The HELOC's lower closing cost only pays off if the borrower can carry the monthly obligation; falling behind triggers foreclosure on the same mechanics as any second mortgage. Second, the borrower has a credit profile that qualifies for the lender's better rate tier. A HELOC priced 200 basis points above a HECM's expected rate erodes the cost-of-funds advantage quickly. Third, the borrowing horizon is short or the equity need is event-driven (a kitchen renovation, a known medical expense, a bridge until a planned home sale). A HELOC can be opened, drawn, repaid, and closed inside two or three years at relatively low total cost.

The CFPB's HELOC consumer guide flags the draw-to-repayment payment shock as the most-frequent driver of HELOC distress in its complaint data. A borrower comfortable with a $400 monthly interest-only payment at year five can face a $1,200 amortizing payment in year eleven when the repayment period begins.

When does a reverse mortgage fit the situation?

A HECM tends to fit borrowers in three situations a HELOC does not handle. First, the cash-flow direction matters more than the cost-of-funds spread: a borrower whose income does not cover monthly HELOC payments cannot use a HELOC regardless of how much equity sits in the home. The HECM's no-required-payment structure converts equity to liquidity for a borrower whose monthly budget is the binding constraint. Second, the borrowing horizon is long. A HECM is structured to run for the life of the borrower in the home; the HELOC's repayment period forces full amortization on a 30-year clock that often outruns a retired borrower's income stability. Third, the borrower values the line-of-credit growth feature unique to HECM. The unused HECM credit line grows over time at the same rate the loan accrues interest, per 24 CFR §206.25. That feature is absent from a HELOC, which the lender can freeze, reduce, or revoke at its discretion (CFPB Reverse Mortgages: What You Should Know).

The trade-offs are not small. HECM closing costs sit at 3–6% of home value, with the upfront MIP as the largest single line item. The compounding balance grows whether the borrower draws or not, and the 0.5% annual MIP applies for the life of the loan. The full list of HECM-specific reverse-mortgage downsides covers each cost line and its long-horizon effect.

When does neither product fit?

A HECM is wrong for a borrower planning to leave the home within five to ten years; the upfront costs do not amortize. A HELOC is wrong for a borrower without monthly cash flow to make payments; the foreclosure exposure is real. A home equity loan combines the worst of both in the wrong situation: fixed monthly payments with no flexibility, on a balance that doesn't grow with the borrower's needs.

Several alternatives serve cases where neither product fits: selling and downsizing, family loans, state property-tax deferral programs, sale-leaseback arrangements. A separate guide compares each.

How do you use the matrix?

The order of rows is not a ranking; relative weight depends on the borrower's binding constraint. A borrower with no monthly cash flow weights the first row most. A borrower focused on heirs weights the inheritance row most. A borrower with a five-year payoff plan weights closing costs most. Run the reverse-mortgage calculator with your own numbers, then read the rows that apply.

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