Reverse Mortgage vs. Home Equity Loan: What You Need to Know
Reverse Mortgage vs. Home Equity Loan: What You Need to Know
For most of us as we age, our homes are often our most valuable asset-not just as a place to live, but also as a source of financial security. Many of our clients who are looking to supplement income, pay for medical expenses, or simply enjoy more freedom in retirement, are tapping into their home equity, which is very often a smart move. Two common options are a reverse mortgage and a home equity loan. Each has its advantages, but which one is right for you?
Here’s what you need to know.
What Is a Reverse Mortgage?
A reverse mortgage is designed specifically for homeowners aged 62 and older (although we also now have programs that start at age 55- these require more equity). It allows you to borrow against the value of your home without having to make monthly loan payments. With enough equity, you can receive the money as a lump sum, monthly income, or a line of credit.
You remain the owner of your home, and the loan doesn't need to be repaid until you move out permanently, sell the house, or pass away. The most common type is the Home Equity Conversion Mortgage (HECM), which is federally insured.
What Is a Home Equity Loan?
A home equity loan is a more traditional option that gives you a lump sum of money based on your home’s equity. You repay it in fixed monthly payments over a set number of years — similar to a second mortgage.
This option is available to homeowners of any age, but you'll need to show proof of income and creditworthiness to qualify.
When a Reverse Mortgage May Be a Good Fit
You're looking for additional retirement income or cash flow.
You want to stay in your home for the foreseeable future.
You have a lot of equity locked up that you want access to.
You're on a fixed income and don’t want monthly loan payments.
You’re on a variable or self-employed and don’t want monthly loan payments.
You want a line of credit that grows over time if unused.
Reverse mortgages can offer peace of mind by turning home equity into accessible funds — without the stress of another monthly bill. Just remember: you still must pay property taxes, insurance, and maintain the home.
When a Home Equity Loan May Be Better
You need a large lump sum to pay for home repairs, medical expenses, or consolidate debt.
You have stable retirement income and don’t desire additional cash flow (pensions, Social Security, investments).
You prefer the structure of making fixed monthly payments and a set loan term.
You want to leave more equity in the home for heirs.
Home equity loans can be a smart option if you're financially comfortable and can handle the additional monthly obligation.
A Word About Legacy and Estate Planning
One of the most important considerations in retirement is your legacy. A reverse mortgage can reduce the amount of home equity left to your heirs, though they may still keep the home by repaying the loan. Many of our clients are preferring to help their heirs now with the monthly payment savings rather than have everyone just inherit the property. With a home equity loan, you’re actively repaying what you borrow, preserving more value in your estate. It’s worth noting that borrower’s do have the ability to make interest only payments if they prefer to reduce the amount of interest the loan accrues.
Final Thoughts
Your home is more than a roof over your head — it’s a financial tool that can support a more comfortable and flexible retirement. Whether a reverse mortgage or a home equity loan is right for you depends on your income, financial goals, and how long you plan to remain in your home.
Ask us what kind of loan is right for you
