Reverse mortgage vs. home equity loan or HELOC

Americans have a near-record amount of equity in their homes, which they can tap for cash to help finance new home projects, business ventures or education.

Reverse mortgages, home equity loans and HELOCs can help homeowners do that. These loans are secured by the home, so rates are typically lower than for other types of debt. However, the bank could force you into foreclosure if you fail to make payments on time.  

But that is where the similarities between these types of financing options end: Each tool has different repayment structures, requirements and distribution methods. Additionally, while home equity loans and HELOCs are usually taken out to fund a specific project or expense, reverse mortgages are typically used as a source of supplemental income in retirement. 

Here's what you need to know about each type of mortgage and the type of homeowner that may benefit from the different options.

Here is how each of these home loans works, including the structure and requirements. 

With a reverse mortgage, homeowners as young as 55 with significant home equity can take out a loan. Homeowners are required to begin repayments once they give up the home as their primary residence, typically due to a death, sale, moving out or until they fail to stay current on property taxes, homeowners insurance, and home upkeep. 

Homeowners are not required to make payments as long as these conditions are met, but interest will still accrue, meaning they’ll owe more when they leave the house than when they took out the loan. If the loan is not paid off before the mortgage borrower’s death, the heirs will have 30 days to inform the lender whether they plan to sell the property, transfer it to another owner, or keep it and pay off the debt. Usually, the heirs have six to 12 months to carry out their plan. 

The most common type of reverse mortgage, the Home Equity Conversion Mortgage (HECM), is backed by the U.S. Department of Housing and Urban Development. Homeowners must be 62 or older, have 50% or more home equity, and complete a mandatory counseling session with a HUD-approved counselor. As of 2026, the maximum HECM amount allowed was $1,249,125.

Most reverse mortgage lenders also offer a proprietary jumbo reverse mortgage product for those 55 or older. 

With a home equity line of credit (HELOC), homeowners have a credit limit — typically between $25,000 and $500,000 — and can borrow up to that limit repeatedly over a set period. 

Unlike a home equity loan, you don’t have to start repaying the loan as soon as you withdraw funds. Instead, you’ll have a draw period, which is typically 10 years, and you’ll pay interest only on the amount you withdraw during that time. 

At the end of the 10-year term, you can no longer make withdrawals from the line of credit and will enter the repayment period, which is typically 20 years. You’ll have to make minimum payments each month — and, like a home equity loan, your lender can foreclose on your home if you fail to pay. 

Home equity loans are provided as a lump sum and typically range from $10,000 to $500,000 — though some lenders offer loans that are smaller or larger than that. 

Repayment terms begin immediately upon disbursement of funds. Homeowners make monthly payments for five to 30 years. If you fail to make on-time payments, the lender may initiate foreclosure proceedings. 

A reverse mortgage is best for older people who need to tap into their home equity to supplement their retirement income. These homeowners must have substantial home equity and be able to maintain their home and make on-time property tax and homeowners insurance payments. 

It’s also important for homeowners considering this option to speak with a HUD-approved counselor or a certified financial planner to understand the risks for themselves and their heirs. 

Here’s who may want to consider tapping into their home equity with a reverse mortgage: 

• Homeowners 62 years or older (55 years or older in some cases)
• Homeowners who need to supplement their retirement income, and have no other way to do so other than their home equity
• Homeowners with 50% or more in equity 
• Homeowners who are certain they’ll be able to make on-time payments on homeowners insurance and property taxes. 
• Homeowners who have the ability to keep up with their home maintenance

If you’ve decided a reverse mortgage is the right option for you, two of our top lender picks are Longbridge Financial and Finance of America. 

Longbridge Financial offers lower rates than its competitors and doesn’t charge a monthly fee, unlike other reverse mortgage lenders. Active-duty service members and veterans can receive $500 toward closing costs with Longbridge. 

However, you won’t be able to complete your application online. 

Finance of America offers a wider-than-normal range of loans, including HECMs, proprietary jumbo reverse mortgages, and a reverse second mortgage. Plus, it doesn’t require mortgage insurance premiums, and there are no origination fees. 

It's not transparent about its rates and doesn't offer an online application. 

A HELOC is another excellent option for those who want to tap into their home equity without the age and equity restrictions or risks of a reverse mortgage. 

It’s better for people who don’t know exactly how much they may need to borrow, and may need to make multiple withdrawals over a 10-year period. It’s also a good option for those who know they will earn more money during the 20-year repayment term than they did when they opened the debt.

Here’s who may want to consider tapping into their home equity with a HELOC: 

• Homeowners who need a revolving line of credit
• Homeowners who can make on-time monthly interest payments during the draw period and on-time monthly payments during the repayment period. 
• Homeowners with strong credit, a debt-to-income ratio of 43% or less and at least 10% to 20% in equity. 
• Homeowners under age 55 who want to tap into their home equity

If you’ve decided a HELOC is your best option, TD Bank and Bank of America are two of our top picks for HELOC lenders. 

TD Bank is a great option if you’re looking for a very large or small withdrawal — it offers lines of credit as high as $6 million and there is no minimum draw. Homeowners can get a 0.25% rate discount by setting up autopay on a checking or savings account. 

However, TD Bank is only available in 15 states and Washington, D.C., and charges an early termination and annual fee. 

Meanwhile, Bank of America has no application fees, account fees or closing costs. It’s also available in all 50 states and accepts credit scores as low as 620. 

But, if you take out a BofA HELOC, you’ll have to close in-person at one of BofA’s 3,800 branches. 

A home equity loan is a good option for those who want to tap into their home equity but don’t meet the age and equity requirements for a reverse mortgage, or who don’t want to take on the risk.

The home equity loan’s lump sum structure makes it ideal for funding a project, paying off high-interest debt, or using the money to make a one-time investment into an asset that will grow in value, such as a business, home renovation project or education pursuit.

Here’s who may want to consider tapping into their home equity with a home equity loan: 

• Homeowners who need a one-time lump sum 
• Homeowners who can make on-time monthly repayments 
• Homeowners with strong credit, a debt-to-income ratio of 43% or less and at least 10% to 20% in equity. 
• Homeowners under age 55 who want to tap into their home equity

If you’ve decided a home equity loan is right for you, Rocket Mortgage and Connexus Credit Union are two of our top picks. 

Rocket Mortgage has a stellar record of customer service, consistently ranking among the top lenders on J.D. Power’s customer satisfaction surveys. It also has a mobile app. 

However, there are no brick-and-mortar locations and homeowners must take out at least $45,000 — a higher-than-average minimum. 

Connexus Credit Union, on the other hand, has a lower-than-average minimum: borrowers can take out a loan as small as $5,000. It also offers low rates, and you only need 10% equity to take out a home equity loan.

However, unlike Rocket, it’s not available nationwide. 

At CNBC Select, our mission is to deliver high-quality service journalism and comprehensive consumer advice to our readers, enabling them to make informed financial decisions. Every mortgage review is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of financial products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties and we pride ourselves on our journalistic standards and ethics.

CNBC Select reviews mortgage products using a variety of criteria, including average rates, terms, availability, fees, types of loans offered, online experience and customer satisfaction. 

Additionally, we incorporate findings from independent sources, including lender scores from the J.D. Power mortgage origination and servicing surveys and ratings from the Better Business Bureau.

For home equity loans, we review rates, repayment terms, the amount of equity required and the minimum and maximum loan amounts available.

We also consider requirements for credit scores, debt-to-income ratios and combined loan-to-value ratios.

Catch up on CNBC Select's in-depth coverage of credit cards, banking and money and follow us on TikTok, Facebook, Instagram and Twitter to stay up to date.