Reverse Mortgage vs HELOC: Which Is Right for You?

If you’re a homeowner sitting on significant equity, you have options for turning that equity into usable cash. Two of the most common are reverse mortgages and home equity lines of credit (HELOCs). Both tap into your home’s value, but they work very differently and serve different financial situations.

Let’s break down how each one works so you can make an informed decision.

How a Reverse Mortgage Works

A reverse mortgage — specifically a Home Equity Conversion Mortgage (HECM) — is a federally insured loan that allows homeowners age 62 and older to convert a portion of their home equity into cash without making monthly mortgage payments.

Instead of you paying the lender each month, the lender pays you. The loan balance grows over time as interest accrues, and the loan is repaid when you sell the home, move out permanently, or pass away. At that point, your heirs can either sell the home to repay the loan or refinance into a traditional mortgage to keep the property.

Key Features of Reverse Mortgages

• Age requirement: At least one borrower must be 62 or older
• No monthly mortgage payments: You’re still responsible for property taxes, homeowner’s insurance, and maintenance
• Non-recourse loan: You (or your heirs) will never owe more than the home’s value, even if the loan balance exceeds it
• FHA insurance: HECM loans are insured by the FHA, protecting both borrowers and lenders
• Counseling required: You must complete HUD-approved reverse mortgage counseling before closing
• Disbursement options: Lump sum, monthly payments, line of credit, or a combination

How Much Can You Get?

The amount you can borrow depends on your age, your home’s appraised value, current interest rates, and the FHA lending limit. Generally, older borrowers with more valuable homes and lower existing mortgage balances can access more equity. In California, HECM limits are $1,149,825 for 2026, which covers most properties in the state.

How a HELOC Works

A HELOC is a revolving line of credit secured by your home’s equity. Think of it like a credit card backed by your house. You’re approved for a maximum amount, and you can draw from that line as needed during the draw period (typically 5-10 years).

During the draw period, you usually make interest-only payments on the amount you’ve borrowed. After the draw period ends, you enter the repayment period (typically 10-20 years), where you make full principal and interest payments on the outstanding balance.

Key Features of HELOCs

• No age requirement: Available to homeowners of any age
• Monthly payments required: Interest-only during the draw period, then full payments during repayment
• Variable interest rates: Most HELOCs have adjustable rates tied to the prime rate
• Draw period flexibility: Borrow what you need, when you need it
• Typically lower closing costs than a reverse mortgage
• Credit score and income requirements: You must qualify based on credit, income, and DTI

Side-by-Side Comparison

Feature	Reverse Mortgage	HELOC
Age requirement	62+	None
Monthly payments	None	Required
Interest rate	Fixed or adjustable	Usually adjustable
Income qualification	Limited	Full income verification
Credit score minimum	Flexible	620+ typically
Closing costs	Higher (2-5% of home value)	Lower (0-2%)
Repayment	When you leave the home	Monthly during loan term
FHA insurance	Yes (HECM)	No
Tax-free proceeds	Yes	Yes (loan proceeds aren’t income)
Risk of foreclosure	Only if you fail to pay taxes/insurance/maintenance	If you miss payments

When a Reverse Mortgage Makes More Sense

A reverse mortgage is typically the better choice when:

You’re retired and on a fixed income. If your monthly budget is tight and you can’t comfortably take on a new monthly payment, a reverse mortgage lets you access equity without adding to your monthly obligations.

You plan to stay in your home long-term. Reverse mortgages work best when you plan to age in place. The loan doesn’t need to be repaid until you leave the home, so there’s no pressure to sell or refinance.

You want to eliminate your existing mortgage payment. If you still have a traditional mortgage, a reverse mortgage can pay it off, eliminating that monthly payment. Many California homeowners use reverse mortgages specifically for this purpose — freeing up hundreds or thousands of dollars per month.

You want predictable, steady income. You can structure a reverse mortgage to provide monthly payments for life (tenure option), giving you a reliable income stream throughout retirement.

Your heirs understand the arrangement. A reverse mortgage reduces the equity your heirs will inherit. But it also lets you live comfortably in your home without being a financial burden on your family. Many families find this is a worthwhile trade-off.

When a HELOC Makes More Sense

A HELOC is typically better when:

You have a steady income and can make monthly payments. If you’re still working or have reliable retirement income that comfortably covers a new payment, a HELOC gives you flexible access to equity at a lower overall cost.

You need funds for a specific, short-term purpose. Home renovations, medical expenses, or helping a child with a down payment — if you know you’ll repay the funds within a few years, a HELOC’s lower closing costs make it more economical.

You’re under 62. If you don’t meet the age requirement for a reverse mortgage, a HELOC is your primary option for tapping home equity (along with home equity loans and cash-out refinances).

You want to preserve your equity. Because you’re actively repaying a HELOC, your home equity rebuilds over time. With a reverse mortgage, your equity decreases as the loan balance grows.

Interest rates are low and stable. Since most HELOCs have variable rates, they’re most advantageous when rates are low. In a rising-rate environment, your payments can increase significantly.

The Cost Comparison

Let’s look at a real-world example for a California homeowner.

Scenario: You’re 70 years old with a home worth $800,000, no existing mortgage, and you want to access $200,000.

Reverse Mortgage Costs

• Origination fee: Up to $6,000 (2% of first $200K + 1% above, capped at $6,000)
• FHA mortgage insurance premium: 2% upfront ($4,000 on initial draw) + 0.5% annual
• Closing costs: Approximately $3,000-$5,000 (appraisal, title, recording)
• Monthly payments: $0
• Interest accrual: Compounds on the growing loan balance

HELOC Costs

• Closing costs: $0-$2,000 (many lenders waive these)
• Annual fee: $50-$100 (some lenders waive)
• Monthly interest-only payment: Approximately $1,500-$1,800/month at current rates on $200,000 drawn
• Repayment period payments: Higher, as you’re paying principal and interest

The reverse mortgage has higher upfront costs but zero monthly payments. The HELOC has lower upfront costs but requires consistent monthly payments that can add up to far more over time. The right choice depends on your cash flow, not just the sticker price.

California-Specific Considerations

Property Tax Implications

California’s Proposition 13 limits annual property tax increases to 2% as long as you maintain ownership. Both reverse mortgages and HELOCs preserve your Prop 13 protection because you retain ownership of the home. However, if your heirs inherit and the home transfers outside of a parent-child exclusion, property taxes may be reassessed.

High Home Values Work in Your Favor

California homeowners often have significantly more equity than the national average. If your home is worth $800,000 to $1.5 million or more, both reverse mortgages and HELOCs can provide substantial funds. The HECM limit of $1,149,825 covers most California properties, and proprietary (jumbo) reverse mortgages can go higher.

Community Property State

California is a community property state. If you’re married, both spouses’ interests in the home matter. For reverse mortgages, both spouses should be listed as borrowers if possible — this protects the non-borrowing spouse’s right to remain in the home if the borrowing spouse passes away first.

Common Misconceptions

“The bank owns your home with a reverse mortgage.” No. You retain full ownership and title. The lender has a lien, just like any mortgage.

“A HELOC is always cheaper.” Not necessarily. If you can’t comfortably make the monthly payments, a HELOC can lead to financial stress or even foreclosure. A reverse mortgage’s zero-payment structure can be more affordable in practice.

“Reverse mortgages are a last resort.” This outdated thinking ignores the strategic value of reverse mortgages in retirement planning. We address more of these misconceptions in our guide to common reverse mortgage myths. Many financially comfortable retirees use them to preserve investment portfolios, delay Social Security, or fund long-term care.

Talk to a Specialist

Choosing between a reverse mortgage and a HELOC isn’t a decision you should make alone. Both products have nuances that depend on your age, income, goals, and family situation.

At Good Life Lending, Selvin Herrera specializes in both traditional and reverse mortgage lending for California homeowners. We’ll run the numbers on both options and give you a clear recommendation based on your specific situation — no pressure, no sales pitch. You can also check if you qualify for a reverse mortgage using our quick online form.

Schedule a free consultation or call (626) 681-3844 to discuss your home equity options.