Senior Resources » Reverse Mortgage vs. Home Equity Loan – What’s the Difference and Which is Better?

Reverse Mortgage vs. Home Equity Loan – What’s the Difference and Which is Better?

Reverse Mortgage vs. Home Equity Loan - What's the Difference and Which is Better?

If you’re looking for a little financial help during your retirement years, you’ve probably come across reverse mortgages and home equity loans as potential options. Both can tap into your home’s equity and give you that leg up you’re looking for. But what’s the difference and which one is better suited for your needs? If your research has left you confused, don’t worry – you’re in the right place now! Let’s shed some light on these two options and discuss which is best for what situation.


What is a Reverse Mortgage?

reverse mortgage written on paper

A reverse mortgage is a loan specifically designed for homeowners who are 62 and older. It allows you to convert a portion of your home’s equity into cash without selling it. Your loan amount is determined by factors such as your age, your home’s value, and current interest rates. The best part is that with a reverse mortgage, you don’t have to make monthly payments. Instead, the loan is repaid when you sell the house, move out, or pass away.

What is a Home Equity Loan?

reverse mortgage/home equity loan toy house

A home equity loan is often referred to as a second mortgage because it’s more like a traditional loan. Essentially, you’re borrowing against the value of your home while still maintaining ownership. You receive a lump sum upfront, which you’ll then repay monthly over a specified period. A home equity loan typically has a lower interest rate than other forms of credit and it’s completely separate from your primary mortgage.


Which is Better for YOU?

question marks shrugging man

Which is better? Well, that actually depends on a lot. To answer this, you’ll have to consider your specific financial goals and circumstances. Here are a few things to keep in mind:

  • Repayment – Reverse mortgages don’t require monthly payments. This can be appealing to retirees who are in need of extra cash flow. On the other hand, home equity loans require regular repayments, which can be a good fit if you prefer a traditional, structured plan, and can afford it.
  • Homeownership and Inheritance – With a reverse mortgage, you retain ownership of your home. However, the loan must be repaid when you no longer occupy the home. For many, this means that once they pass away, their heirs will sell the house to pay back the loan. With a home equity loan, you still own your home, and any remaining equity can be passed on to your loved ones after death.
  • Eligibility – A reverse mortgage is for seniors who are 62 and older, while home equity loans are more widely accessible based on past credit, income, and equity.

The Bottom Line

house and wrapped up money on a teeter totter

A reverse mortgage may be a great fit if you want to access your home equity without the burden of monthly mortgage payments. It can provide a steady stream of income or a lump sum for immediate needs, offering flexibility and financial security during your retirement years.


A home equity loan might be the better choice for you if you prefer an upfront lump sum and have a specific expense in mind. Home equity loans come with predictable monthly payments, giving you greater control over your budget and allowing you to repay the loan over time.


Bottom line – both options have their advantages. Remember that every situation is different, and what works for someone else may not be the best idea for you. Take the time to explore your options, ask questions, and gather all the necessary information before making a final decision. Consult with a financial advisor who can further evaluate your unique situation and help guide you.

Looking for Something Else?

piggy bank with heart and houses in background

If you need more help with retirement planning and personal finance, then check out our blog for that!

Originally published May 25, 2023

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