A reverse mortgage is one of five common ways to turn home equity into cash — and often not the cheapest. Here’s how it stacks up against a HELOC, a home-equity loan, a cash-out refinance, and simply downsizing, plus which one tends to fit which situation.
| Reverse mortgage (HECM) | HELOC | Home-equity loan | Cash-out refi | Downsizing | |
|---|---|---|---|---|---|
| Who it’s built for | Owners 62+ staying long-term, income-tight | Owners wanting flexible, on-demand borrowing | Owners wanting a fixed lump sum + fixed payment | Owners who’d refinance the whole mortgage anyway | Owners open to a smaller/cheaper home |
| Minimum age | 62 | None | None | None | None |
| Monthly payment? | None while you live there | Yes — interest-only, then principal | Yes — fixed principal + interest | Yes — a new full mortgage payment | Depends on the new home |
| Does the debt grow? | Yes — balance compounds | Only if you don’t pay it down | No — it amortizes down | No — it amortizes down | N/A |
| Upfront cost | High (MIP + origination + closing) | Low to moderate | Low to moderate | Moderate to high (full refi costs) | Selling + moving costs |
| Income/credit check | Financial assessment (lighter) | Full underwriting | Full underwriting | Full underwriting | N/A |
| Risk if you fall behind | Default via unpaid tax/insurance → foreclosure | Foreclosure on missed payments | Foreclosure on missed payments | Foreclosure on missed payments | Minimal |
| Effect on inheritance | Erodes equity heirs receive | Reduces equity by amount owed | Reduces equity by amount owed | Reduces equity by amount owed | Frees equity now; you control it |
| Best when you’ll… | Stay put for many years | Borrow flexibly, repay over time | Need a set sum, can make payments | Want a new rate + cash together | Are ready to move anyway |
Directional summary — terms vary by lender, credit, and home value. Rates in the ticker above are national-average snapshots. Confirm specifics with each lender and a HUD counselor.
Under 62, a reverse mortgage isn’t even on the table — it’s a HELOC, home-equity loan, cash-out refi, or downsizing. At 62+, the reverse mortgage joins the menu, but it earns its high cost only if you’ll stay put for many years. The older you are, the more you can borrow and the better the trade tends to look.
If there’s a real chance you’ll move within a few years, avoid the front-loaded costs of a reverse mortgage or a cash-out refi. A HELOC (low upfront cost, close it when you sell) or simply downsizing now usually wins. If you’re certain you’re staying for life, the reverse mortgage’s costs have time to pay off.
The reverse mortgage is the only option here with no required monthly payment — that’s its signature advantage for a tight fixed income. But “no payment” means the balance grows instead. If you can handle a payment, a HELOC or home-equity loan is far cheaper and keeps your equity intact.
If passing the home to family matters, weigh the compounding carefully: a reverse mortgage erodes the most inheritance over time. A home-equity loan or HELOC reduces the estate only by what you actually borrow and repay. Downsizing converts equity to cash you fully control — and can gift or invest — today.
For most people who can make a payment and might move someday, a HELOC, home-equity loan, or downsizing beats a reverse mortgage on cost. The reverse mortgage wins in a specific case: 62+, staying for the long haul, needing income, and not counting on leaving the house to anyone. If that’s you, run the numbers and read the full decision guide. If it isn’t, one of the alternatives above almost certainly costs you less.
Educational, not individual financial advice. The Equity Ledger doesn’t originate loans. Reverse mortgages are complex and the right answer depends on your specific situation — confirm the details with a HUD-approved counselor before you decide.
Rules and figures are from U.S. government program materials current at publication; HECM limits and rates change — verify with HUD/FHA or a HUD-approved counselor.