Reverse mortgage or HELOC: repaid when you leave the home, or repaid as you go
A reverse mortgage, in the form the federal government insures, is a Home Equity Conversion Mortgage (HECM): a loan against the equity in the home you live in, for a homeowner of sixty-two and over, with no monthly mortgage payment, repaid when the last borrower dies, sells or moves out, while the property taxes, the insurance and the upkeep stay yours to pay. A home equity line of credit (HELOC) is a line of credit secured by your home that you draw on as you need to and repay as the plan's terms require, open to any homeowner a lender qualifies. This page sets the two side by side under HUD's rules for the HECM and Regulation Z's rules for the line. California Mortgage Solutions, an independent mortgage broker in San Luis Obispo, wrote it for homeowners in San Luis Obispo County weighing the two.
Side by side
| The rule | Reverse | HELOC |
|---|---|---|
| Who may borrow | A homeowner whose youngest borrower is sixty-two or over at closing, under HUD's rule, who lives in the home as a principal residence. A spouse under that age can be an eligible non-borrowing spouse, and the amount available is figured on the younger of the two. The lender also assesses your credit history, cash flow and residual income under HUD's financial assessment. | Any homeowner with equity the lender agrees to lend against, under its own underwriting criteria. Regulation Z sets no age rule for a line, and the CFPB notes that qualifying depends on your income and credit. |
| Counseling | Required before the loan can be made. The borrower, any non-borrowing spouse and any non-borrowing owner must receive counseling from a HUD-approved HECM counselor; the lender must give you a list of approved counselors at its first contact with you, and the counselor's certificate goes to the lender. | None required by Regulation Z. The lender must give you the federal brochure on home equity lines of credit, which points you to HUD-approved housing counselors, and the CFPB says such a counselor can help you weigh the alternatives to a line. |
| Monthly payments, and when the loan is repaid | No monthly mortgage payment while the loan is outstanding: interest and the mortgage insurance premium are added to the balance each month, and repayment is deferred until the loan becomes due and payable, which HUD's rule sets at the death of the last borrower, unless an eligible non-borrowing spouse remains in the home through a deferral period, at the sale or conveyance of the home, or when it stops being a borrower's principal residence, with a long absence for illness counted. It can also be called due when the property charges go unpaid or another obligation under the mortgage is not performed. All the while you keep paying the property taxes, the homeowners insurance and any other property charges, and keep the home in good repair. | Payments are required under the plan's terms, which the lender's written disclosures must set out before the line opens. The CFPB's page on alternatives to a reverse mortgage says a home equity loan or line usually has monthly payments, and that if you fall behind you could lose your home. |
| How much you can draw | Up to the principal limit, which HUD's rule figures from the age of the youngest borrower or eligible non-borrowing spouse, the expected average mortgage interest rate and the maximum claim amount, itself the lesser of the appraised value and HUD's limit. The limit grows each month under HUD's formula, and HUD caps what can be disbursed at closing and in the period that follows it. No amount or share is set out here. | Up to the credit limit the lender sets against your equity, under its own criteria. The CFPB's booklet describes it as generally a share of the home's appraised value less what you owe on your mortgage; no share is set by rule. |
| Which home | The principal residence of each borrower at closing, which HUD defines as the dwelling where you keep your permanent place of abode and typically spend most of the year; a one-family dwelling or a condominium unit designed for one family, meeting HUD's property standards. | The home you live in, and at some lenders a second home or a rental, each under the lender's rules. A line used to acquire, improve or maintain a rental you do not live in is business credit under Regulation Z, outside the disclosures, the brochure and the right to cancel described on this page. |
| Mortgage insurance | FHA mortgage insurance, paid for through an initial premium at closing and a monthly premium added to the balance, at rates HUD sets and none of which is stated here. As the CFPB explains, that insurance stands behind your loan advances and covers any shortfall when the home is sold for less than the balance. | None required by Regulation Z. Whether any insurance is required is set by the lender. |
| If the home sells for less than the balance | You and your heirs owe nothing beyond the home. The borrower has no personal liability for the balance, the lender enforces the debt only through sale of the home and may not obtain a deficiency judgment, and FHA's insurance covers the shortfall. Heirs can keep the home by paying off the balance, or sell it and keep what is left over the balance. | The line is an ordinary debt secured by the home. After a borrower's death it is paid like any other debt of the estate, from the estate's money and property, as the CFPB explains, and the CFPB's booklet says a sale of the home generally requires paying the line off in full. |
| Can the lender shrink the line? | Under HUD's line of credit option the lender pays out promptly at the times and in the amounts you choose, within a principal limit that grows each month. The regulation names the cases where disbursements stop: when the loan becomes due and payable, during a deferral period after the last borrower's death, and, when required repairs go unfinished, except to pay for the repairs. | Yes, while a condition Regulation Z names lasts, among them: the home's value falls significantly below its appraised value for purposes of the plan, the lender reasonably believes you cannot repay because of a material change in your finances, you are in default of a material obligation under the agreement, government action keeps the lender from charging the agreed rate or impairs its lien, or its regulator says further advances are unsafe. Once the condition ends, the lender must restore the line. |
| What you must be given | Regulation Z's reverse mortgage disclosures, with a table of total annual loan cost rates projecting the cost of the credit, and HUD's requirement that the lender ensure you have full disclosure of all the costs of obtaining the mortgage, stating which charges are required to obtain it and which are not. The Loan Estimate and Closing Disclosure forms do not apply to a reverse mortgage. | The lender's written disclosures of its plan and the federal brochure, What You Should Know About Home Equity Lines of Credit, or a suitable substitute, when you are given an application or shortly after one taken by telephone or through a broker: the plan's payment terms, its fees, the index and margin on a variable-rate plan, and the conditions on which the lender can change the plan. |
Where each one fits
Reverse can fit when
- You are sixty-two or over, live in the home as your principal residence, and have equity enough to pay off any mortgage still on it.
- You want no monthly mortgage payment, understanding that the taxes, the insurance and the upkeep continue and that the loan is repaid when the last borrower dies, sells or moves out.
- You have completed, or will complete, HUD's counseling, and you accept that the balance grows as interest and the premium are added to it.
HELOC can fit when
- You can qualify on your income and credit under the lender's criteria, and you are confident of keeping up with the payments.
- You want to borrow and repay as you go, and would rather not draw the home's equity down through a growing balance; the CFPB's booklet warns that with a HECM you might not have value left in the home to leave to your heirs.
- You are under the age HUD's rule sets, or the home is a second home or a rental, which a HECM cannot be.
What the two have in common
- Both are secured by your home, and both are repaid in full when the home is sold.
- Both can be a line of credit drawn as you choose: the HECM under its line of credit payment option, the HELOC by definition.
- On the home you live in, both carry Regulation Z's right to cancel for a short time after closing, other than a loan that buys the home, and no money is paid out until that time has passed.
- Under either, the property taxes and the homeowners insurance stay yours to pay, and falling behind on your obligations can cost you the home.
Questions
Does a reverse mortgage mean I never pay the loan back?
No. A HECM is a loan, and it is repaid: the balance, with the interest and the mortgage insurance premium added to it each month, becomes due and payable when the last borrower dies, unless an eligible non-borrowing spouse remains in the home through a deferral period, when the home is sold or title is conveyed, or when it stops being the borrower's principal residence, and it can be called due when the property taxes, the insurance or the upkeep go unmet. It is usually repaid by selling the home, and under HUD's non-recourse rule nothing beyond the home can be collected from you or your heirs.
Do I need counseling for a HELOC the way I do for a reverse mortgage?
Not by rule. HUD requires every HECM borrower, any non-borrowing spouse and any non-borrowing owner to receive counseling from a HUD-approved counselor before the loan can be made. Regulation Z requires no counseling for a home equity line of credit; the lender must give you the federal brochure, which points you to HUD-approved housing counselors, and the CFPB says such a counselor can help you weigh the alternatives.
Can I keep a HELOC if I take out a reverse mortgage?
Not as it stands. HUD's rules require any existing liens on the home to be paid off at the HECM's closing, and the mortgage bars new liens unless they are subordinate to the insured loan. HUD's regulation allows a home equity line of credit that does not meet its seasoning rule to be paid off at closing from your own funds, from the HECM's funds within HUD's draw limits, or from both.
What do my heirs face under each?
With a HECM, the loan comes due at the last borrower's death, after any deferral period for an eligible non-borrowing spouse. The heirs can keep the home by paying off the balance, or sell it and keep whatever the sale brings over the balance; if the home is worth less than the balance, the loan is non-recourse, so they do not owe the difference and FHA's insurance covers it. A home equity line of credit is an ordinary secured debt: it is paid from the estate like any other debt, as the CFPB explains, and a sale of the home generally requires paying it off in full.
Sources
The publications behind the rules above. Where a row says each lender decides for itself, no publication sets that rule. The figures for the county come from the county's loan limit page, with their own sources.
- 24 CFR 206.3, Definitions (HECM: principal limit, eligible non-borrowing spouse, property charges), read October 25, 2026.
- 24 CFR 206.19, Payment options, read October 25, 2026.
- 24 CFR 206.25, Calculation of disbursements, read October 25, 2026.
- 24 CFR 206.27, Mortgage provisions (obligations, non-recourse, when the loan is due and payable), read October 25, 2026.
- 24 CFR 206.33, Age of borrower, read October 25, 2026.
- 24 CFR 206.36, Seasoning requirements for existing non-HECM liens, read October 25, 2026.
- 24 CFR 206.39, Principal residence, read October 25, 2026.
- 24 CFR 206.41, Counseling, read October 25, 2026.
- 24 CFR 206.43, Information to borrower, read October 25, 2026.
- 24 CFR 206.45, Eligible properties, read October 25, 2026.
- 24 CFR 206.105, Amount of MIP, read October 25, 2026.
- HUD, Home Equity Conversion Mortgages for Seniors, read October 25, 2026.
- CFPB, What is a reverse mortgage?, read October 25, 2026.
- CFPB, Can anyone take out a reverse mortgage loan?, read October 25, 2026.
- CFPB, What should I think about before applying for a reverse mortgage loan and what should I ask a reverse mortgage counselor?, read October 25, 2026.
- CFPB, How much money can I get with a reverse mortgage loan, and what are my payment options?, read October 25, 2026.
- CFPB, How much does a reverse mortgage loan cost?, read October 25, 2026.
- CFPB, With a reverse mortgage loan, can my heirs keep or sell my home after I die?, read October 25, 2026.
- CFPB, Reverse mortgages: a discussion guide, read October 25, 2026.
- CFPB, Does a person's debt go away when they die?, read October 25, 2026.
- Regulation Z, 12 CFR 1026.33, Requirements for reverse mortgages, read October 25, 2026.
- Regulation Z, 12 CFR 1026.19, Certain mortgage and variable-rate transactions (the Loan Estimate and Closing Disclosure), read October 25, 2026.
- Regulation Z, 12 CFR 1026.23, Right of rescission (closed-end credit), read October 25, 2026.
- Regulation Z, 12 CFR 1026.40, Requirements for home equity plans, read October 25, 2026.
- Regulation Z, 12 CFR 1026.15, Right of rescission (open-end credit), read October 25, 2026.
- Regulation Z, 12 CFR 1026.3, Exempt transactions, with its official interpretation, read October 25, 2026.
- CFPB, What you should know about home equity lines of credit (the federal HELOC booklet), read October 25, 2026.
- CFPB, What is a home equity line of credit (HELOC)?, read October 25, 2026.
- CFPB, What other types of loans are similar to a HELOC?, read October 25, 2026.
Keep reading:Every loan, comparedThe county's loan limits
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