Reverse mortgage vs HELOC: costs, payments and heirs, with a $60,000 example

8 min read · LenderMatch Learn

A reverse mortgage and a HELOC both turn home equity into cash, but they are repaid in opposite ways. A HELOC has monthly payments from the start, and you qualify on your credit and income. The federally insured reverse mortgage, called a HECM, is open only to homeowners 62 and older, needs no monthly loan payment, and is repaid when you sell, move out or die, usually from the sale of the home.

The trade is cost for cash flow. In the example below, $60,000 drawn from a reverse mortgage at age 75 grows to about $156,000 owed after 10 years, while the same $60,000 on a HELOC costs $400 a month and is still $60,000. If your income can carry a payment and a HELOC fits, comparing offers from several lenders shows you the rates and fees you would actually get.

Reverse mortgage vs HELOC: the main differences

How does a reverse mortgage work?

The CFPB says the Home Equity Conversion Mortgage is the most common type of reverse mortgage. It is insured by the Federal Housing Administration (FHA), part of HUD, and you keep the title to your home. The lender pays you through a line of credit, equal monthly payments for a set term or for as long as you live there, or a mix. A single lump sum is offered only on fixed-rate HECMs.

Interest and the annual mortgage insurance are added to the balance every month, and nothing is repaid until the loan comes due. The balance grows and your equity shrinks.

How much you can get, called the principal limit, depends on the age of the youngest borrower (or eligible non-borrowing spouse), the expected interest rate, and the lesser of your home’s appraised value or HUD’s limit. For 2026, HUD set that limit at $1,249,125 nationwide, up from $1,209,750 in 2025. HUD’s own actuarial review lists sample factors: at a 7.00% expected rate, the principal limit is 33.3% of the home’s value at age 65, 40.0% at 75 and 51.1% at 85. On adjustable-rate HECMs, HUD also caps how much you can take in the first 12 months.

Who qualifies for a reverse mortgage?

• Age 62 or older. The youngest borrower must be 62 at closing.
• The home is your main residence. The loan comes due if no borrower lives there, including after more than 12 straight months away for illness.
• Counseling first, with a HUD-approved HECM counselor, for every borrower and any non-borrowing spouse.
• A financial assessment of your credit history, cash flow and residual income. The lender may require a set-aside from the loan to pay your property taxes and insurance.
• A first lien. Any existing mortgage or HELOC is paid off at closing.

What does a reverse mortgage cost?

FHA charges an upfront mortgage insurance premium of 2% of the home’s value (capped at the HUD limit) and an annual premium of 0.50% of the balance, the rates in place since October 2017. The lender’s origination fee is capped at the greater of $2,500, or 2% of the first $200,000 of value plus 1% of the rest, and never more than $6,000. Appraisal, title and recording charges come on top.

On a $400,000 home, that is $8,000 of mortgage insurance plus up to $6,000 of origination: $14,000 before third-party costs. Most of it can be paid from the loan, which means it starts earning interest on day one.

How a HELOC works in retirement

A HELOC is a credit line secured by your home. You draw during the draw period, often 10 years, usually paying interest only, then repay over a set term that the CFPB says often runs 10 or 15 years. See when the draw period ends for how the payment jumps.

Age is not a limit, but income is. Lenders check your credit score, equity and debt-to-income ratio, and many prefer that ratio under about 43%. Documented Social Security, pension and investment income can count; see HELOC requirements. Rates are usually variable and tied to the prime rate, 7.00% and unchanged since September 17, 2026.

Under Regulation Z, the lender can also freeze or reduce your line while your home’s value has fallen significantly, or if it reasonably believes a material change in your finances means you cannot repay.

Reverse mortgage line of credit vs HELOC

• The HECM line grows. HUD’s rules increase the principal limit each month at the loan’s interest rate plus the 0.50% insurance rate, and the unused line grows at the same pace. That is extra borrowing room, not interest paid to you; anything you draw later is owed with interest.
• No fixed draw period. HUD’s rules do not close the line after a set number of years, and the lender must send a requested draw within five business days.
• Only adjustable-rate HECMs have a line. A fixed-rate HECM pays one lump sum at closing.
• A HELOC line does not grow. It stays at your limit, stops at the end of the draw period, and can be frozen in the cases above.

Worked example: $60,000 from a $400,000 home at age 75

Say you are 75, own a $400,000 home free and clear, and want $60,000. For illustration, the reverse mortgage uses a 7.00% rate (so the balance grows at 7.50% with the 0.50% insurance), and the HELOC uses 8.00% (the 7.00% prime rate plus an assumed 1.00% margin).

• Reverse mortgage: a principal limit of 40% of $400,000 is $160,000. The $8,000 upfront insurance and $6,000 origination fee are financed, so you start owing $74,000 and have $86,000 left on the line.
• HELOC: you draw $60,000 and pay interest only: $60,000 × 8.00% ÷ 12 = $400 a month.

Calculated by LenderMatch with monthly compounding. The 40% factor is HUD’s published factor for age 75 at a 7.00% expected rate. Rates are assumptions, not quotes, and third-party closing costs are left out of both.

The HELOC costs less: $48,000 of interest paid versus about $96,300 added to the reverse mortgage balance. The reverse mortgage kept $400 a month in your budget and left a larger, growing line for later. Run your own equity numbers in the home equity calculator.

What happens to a reverse mortgage when you die?

The loan comes due when the last surviving borrower dies, unless an eligible non-borrowing spouse qualifies to stay under HUD’s deferral rules.

After the lender’s due-and-payable notice, the CFPB says heirs have 30 days to act, which may be extended by up to six months. They can keep the home by paying off the loan, possibly with a mortgage of their own, or sell it, repay the loan and keep the rest. If the loan is larger than the home’s value, they can sell for at least 95% of the appraised value, and FHA mortgage insurance covers the shortfall.

A HECM is non-recourse: HUD’s rules say the borrower has no personal liability and the lender can collect only from the sale of the home. A HELOC balance, by contrast, has to be repaid in full.

Reverse mortgage or HELOC: which is better for retirement?

A HELOC tends to fit if your income covers the payment, you plan to repay what you borrow, you want to leave more equity to heirs, or you are under 62.

A HECM tends to fit if you are 62 or older, plan to stay in the home for many years, and a monthly loan payment would strain your budget. It is a costly way to borrow for a short time, because the upfront insurance and fees are paid whether you stay two years or twenty.

A HUD-approved HECM counselor can walk through your numbers before you decide. For other options, see home equity in retirement and borrowing against a paid-off house.

Frequently asked questions

Is a reverse mortgage better than a HELOC?

It depends on whether you can carry a monthly payment. A HELOC usually costs less in total, because you pay interest as you go and upfront costs are often lower. A HECM needs no monthly loan payment, but its balance grows and leaves less equity for you or your heirs.

What is the HECM limit for 2026?

$1,249,125 nationwide, for FHA case numbers assigned from January 1 through December 31, 2026, up from $1,209,750 in 2025. HUD counts the lesser of your home’s appraised value or this limit when it sizes a reverse mortgage.

Do you make monthly payments on a reverse mortgage?

Not on the loan itself; repayment is deferred until the loan comes due. You must still pay property taxes, homeowners insurance and any HOA fees, live in the home and keep it in repair, or the loan can come due.

Can you get a reverse mortgage if you have a HELOC?

Yes, but a HECM must be the first lien on the home. Your existing mortgage and HELOC are paid off at closing, typically from the reverse mortgage proceeds, which leaves less of the principal limit for you to use.

Is reverse mortgage money taxable?

No. IRS Publication 936 says reverse mortgage payments are loan advances, not income, so they are not taxable. It also says the interest that builds up on a reverse mortgage generally is not deductible.

If a HELOC fits, compare offers from several lenders →