Reverse Mortgage vs HELOC vs Cash-Out Refi
Compare three ways to tap your home equity side by side. See estimated costs, monthly payments, and remaining equity — personalized to your situation.
| Feature | Reverse Mortgage | HELOC | Cash-Out Refi |
|---|---|---|---|
| Available Funds | — | — | — |
| Monthly Payment Required | — | — | — |
| Interest Rate (est.) | — | — | — |
| Upfront Costs | — | — | — |
| Sustains Monthly Income? | — | — | — |
| Total Interest (10 yr) | — | — | — |
| Est. Remaining Equity | — | — | — |
| Age Requirement | 62+ | None | None |
| Repayment Required? | At sale or move-out | Monthly | Monthly |
Which Option Is Right for You?
Choose a Reverse Mortgage if:
- You are 62 or older and want no monthly payments
- You plan to stay in your home long-term
- You want to preserve monthly cash flow in retirement
- You need steady, ongoing access to funds
Choose a HELOC if:
- You need short-term access to funds (under 5 years)
- You can comfortably handle monthly payments
- You want lower upfront costs
- You have reliable monthly income to cover payments
Choose a Cash-Out Refi if:
- You have steady income and can afford fixed payments
- You want a large lump sum at a fixed rate
- You prefer a predictable 30-year repayment schedule
- You are comfortable with a higher monthly obligation
This comparison tool provides simplified estimates using generalized assumptions. Actual rates, terms, fees, and qualification requirements vary by lender and individual circumstances. HELOC rates are variable and may change. Cash-out refinance requires income qualification. This tool is for educational purposes only and is not an offer to lend. Consult with a HUD-approved counselor and licensed lender for personalized guidance.
Understanding Your Options
Homeowners 62 and older have built decades of equity in their homes, and that equity can be a powerful financial resource in retirement. But accessing it involves trade-offs. A HECM reverse mortgage lets you convert equity to cash with no monthly payments — the loan is repaid when you sell or move. A home equity line of credit (HELOC) offers flexible borrowing at potentially lower upfront cost, but requires monthly interest payments that can strain a fixed-income budget. A cash-out refinance replaces your existing mortgage with a larger one at today's rates, giving you a lump sum but committing you to decades of monthly payments.
None of these options is universally "best." The right choice depends on your age, equity, income, how long you plan to stay in your home, and how much monthly payment you can comfortably handle. This tool helps you see the numbers side by side so you can make an informed decision.
Key Differences at a Glance
The fundamental difference comes down to when you pay. With a reverse mortgage, you defer all repayment until you leave the home — interest accrues on the balance over time, but your monthly cash flow is untouched. With a HELOC or cash-out refinance, you start paying immediately. That means the total interest cost may be lower, but the monthly burden is real and ongoing.
Another critical difference is rate structure. HELOCs carry variable rates tied to the prime rate, meaning your payments can increase unexpectedly if rates rise. Cash-out refinances lock in a fixed rate for 30 years. HECM reverse mortgages are available in both fixed and adjustable-rate versions, though the adjustable-rate option offers more flexibility in how you receive funds (line of credit, monthly payments, or a combination).
Upfront costs also vary significantly. Reverse mortgages have the highest closing costs due to the upfront mortgage insurance premium (2% of the maximum claim amount) plus standard origination fees. HELOCs typically have the lowest upfront costs — sometimes none at all. Cash-out refinances fall in between, with closing costs typically running 2-4% of the new loan amount.
Why Monthly Payments Matter in Retirement
For many retirees, the shift from earning a paycheck to living on Social Security, pensions, and savings represents the biggest financial adjustment of their lives. When income is fixed but expenses are not — especially healthcare costs, which tend to rise with age — adding a new monthly loan payment can create real financial stress.
This is the core appeal of a reverse mortgage: it removes the monthly payment obligation entirely. You retain full ownership of your home, you can stay as long as you like, and you never owe more than the home is worth (thanks to FHA insurance). The trade-off is higher upfront costs and a growing loan balance over time. For many seniors, that trade-off is well worth the peace of mind.
If you have reliable income — perhaps from a pension, part-time work, or substantial retirement savings — a HELOC or cash-out refinance might make more financial sense. The key is being honest about what you can sustain for 10, 15, or 20 years, not just what you can afford today.
Related Resources
- Types of Reverse Mortgages — HECM, proprietary, and single-purpose loans compared
- Costs & Fees — Origination fees, MIP, servicing costs, and more
- Eligibility Requirements — Age, equity, and property qualifications
- Reverse Mortgage Basics — A complete beginner's guide to how HECMs work
- Find a HUD Counselor — Required before applying for any HECM loan
- Loan Calculator — Estimate your reverse mortgage proceeds in detail
- Home Equity Calculator — See how much equity you have built up
Disclaimer: While every effort has been made to ensure accuracy, this tool is for educational purposes only. ReverseReady is not a lender or financial advisor. Results are estimates — actual figures will vary based on your specific situation, current rates, and lender terms. Consult a HUD-approved counselor or licensed lender for personalized guidance.