The biggest difference: a HELOC and a cash-out refinance require monthly payments, while a reverse mortgage doesn't require a monthly mortgage payment. A HECM line of credit also can't be frozen or reduced because of market changes the way a HELOC can (as long as you meet the loan terms), and its unused balance grows over time.
| Reverse mortgage (HECM) | HELOC | Cash-out refinance | |
|---|---|---|---|
| Monthly payment | Not required (taxes, insurance and upkeep still are) | Required, often interest-only at first | Required |
| Age requirement | 62+ | None | None |
| Qualifying | Financial assessment; no HUD minimum score | Income and credit score requirements | Income and credit score requirements |
| Line of credit | Unused credit grows; can't be frozen for market reasons | Can be frozen or reduced by the lender | No line of credit |
| Upfront costs | Higher (2% FHA insurance plus fees) | Usually lower | Moderate |
| Balance over time | Grows | Paid down as you pay | Paid down as you pay |
When a HELOC may be better
If you need a small amount for a short time, have comfortable income to make payments, and plan to pay it back soon, a HELOC usually costs less.
When downsizing may be better
If the home no longer fits your needs, selling and moving can free up cash without a loan. A HECM for Purchase is a middle path: buy the right-size home and keep more cash.
When a reverse mortgage tends to fit
When you plan to stay put, want to eliminate a monthly mortgage payment, or want a growing standby line of credit that the lender can't freeze or reduce because of market changes.