Reverse mortgage vs home equity loan

The short version

Both let you borrow against your house. A home equity loan gives you a lump sum at a fixed rate and you pay it back every month, so you need the income to qualify and to make the payments. A reverse mortgage requires no monthly payment; instead the balance grows and is repaid when you sell, move out for good or die. The home equity loan is much cheaper overall. The reverse mortgage is the one that works when a monthly payment doesn’t.

A worked example: borrowing $60,000

A 70-year-old with a $400,000 paid-off house needs $60,000 for a new roof and a car.

Rates: national averages from our rate tracker (2026-08): home equity loan 8.13% APR, HELOC 7.30% APR (variable; we hold it flat here). Home equity loan and HELOC closing costs assumed at 2% of the amount borrowed. Reverse mortgage as below.

Assumptions: principal limit from HUD’s official table at a 7.68% expected rate; balance and unused credit line grow 7.5% a year (7.0% interest + 0.5% annual mortgage insurance); upfront costs = 2% FHA mortgage insurance + the HUD-capped origination fee + about $3,000 of other closing costs. Illustrations, not quotes. Your lender’s rate and a HUD counselor give exact figures.

After ten years, the home equity loan has cost about $70,700 in payments and has about $29,000 left to pay. The reverse mortgage has cost nothing out of pocket, but the balance has grown to about $158,700, which comes out of the house when it is sold. The total cost of the reverse mortgage is higher, because of its 2% upfront FHA insurance and because unpaid interest compounds. What you buy with that cost is ten years with no payment.

Pick the home equity loan if

• Your income comfortably covers another fixed payment, for the whole term.
• You need one specific sum and might move in the next several years. Its upfront costs are far lower.
• Leaving the house, or most of its value, to your family matters to you.
• You are under 62. A HECM isn’t available yet.

Pick the reverse mortgage if

• A monthly payment would strain your budget, or a lender has turned you down on income.
• You expect to stay in the home for many years, so the high upfront costs are spread over a longer stay (though the balance keeps compounding).
• You want flexibility: an adjustable-rate HECM can be a line of credit that grows instead of a lump sum.
• You still carry a mortgage you would like to get rid of. A HECM pays it off at closing, which a home equity loan doesn’t.

Things that surprise people

• You can’t keep both. A reverse mortgage has to be the first lien on the house, so an existing home equity loan is normally paid off at closing, out of the reverse mortgage money. If the home equity loan is less than 12 months old and you took more than $500 in cash from it, HUD generally doesn’t let the reverse mortgage money pay it off.
• Missing payments risks the house either way, in different ways: on a home equity loan it is the loan payment; on a reverse mortgage it is property taxes, insurance, HOA dues, upkeep, and living in the home.
• Taxes: home equity loan interest can be deductible if the money was used to buy, build or substantially improve the home. Interest that accrues on a reverse mortgage is generally not deductible, according to IRS Publication 936. Ask a tax adviser about your case.
• Even the CFPB says compare first. Its guide for older homeowners suggests considering options with lower upfront costs, like a HELOC, before one with higher upfront costs, like a reverse mortgage.

Related

• Reverse mortgage vs HELOC
• Compare all five ways to tap equity
• Is a reverse mortgage a good idea?

Quick answers

Is a reverse mortgage better than a home equity loan?

It depends on whether you can make a monthly payment. A home equity loan costs much less overall but needs income to qualify and pay. A reverse mortgage needs no monthly payment, but costs more and the balance grows.

Can I have a home equity loan and a reverse mortgage at the same time?

Not in practice. A reverse mortgage must be the first lien, so an existing home equity loan is normally paid off at closing, usually with reverse mortgage funds.

Which is cheaper, a reverse mortgage or a home equity loan?

The home equity loan, by a wide margin. A reverse mortgage carries 2% upfront FHA mortgage insurance plus 0.5% a year, and unpaid interest compounds on the balance.

Do I need income to get a home equity loan in retirement?

Yes. Lenders approve home equity loans on income, credit and existing debts. A reverse mortgage depends mainly on age, equity and a check that you can keep paying property taxes and insurance.