Reverse Mortgages and Home Equity Loans: What Sets Them Apart

How a reverse mortgage and a home equity loan work differently

A reverse mortgage lets you borrow against your home's value without making monthly payments back — the loan is repaid when you sell the house, move out permanently, or pass away. A home equity loan works like a traditional loan: you borrow a lump sum and make fixed monthly payments over a set term, usually 5 to 15 years. The core difference is payment structure. With a reverse mortgage, you owe nothing monthly. With a home equity loan, you owe a payment every month, just like a car loan.

Both use your home as collateral, which means both put your house at risk if you cannot repay. But the timing of repayment is opposite. A home equity loan requires you to start paying immediately. A reverse mortgage requires no payment until you leave the home or pass away — at that point, your heirs or the lender sell the house to settle what you owe.

Key Takeaways

• A reverse mortgage requires no monthly payments; a home equity loan requires fixed monthly payments starting right away.
• Reverse mortgages are available only to homeowners 62 and older; home equity loans have no age requirement.
• A reverse mortgage is repaid when you sell, move, or die; a home equity loan is repaid over a fixed term you choose at the start.
• Home equity loans typically have lower interest rates and lower upfront costs than reverse mortgages.
• Both put your home at risk if you cannot repay, and both require you to keep paying property taxes and insurance.

Age and may be able to access requirements

You must be at least 62 years old to get a reverse mortgage. There is no upper age limit. A home equity loan has no age requirement — you can be 35 or 75, as long as you own your home and have enough equity.

Both require you to own your home outright or have paid down enough of your mortgage that you have substantial equity remaining. If you still owe a lot on your original mortgage, you may not have enough equity to borrow against. Both also require you to live in the home as your primary residence and to keep paying property taxes, homeowners insurance, and any HOA fees.

How much you can borrow

With a reverse mortgage, the amount you can borrow depends on your age, the value of your home, and current interest rates. The older you are, the more you can borrow — a 75-year-old can borrow more than a 65-year-old on the same house. Most people can borrow between 50 and 75 percent of their home's value, though this varies.

With a home equity loan, you can typically borrow up to 80 or 85 percent of your home's value, minus what you still owe on your original mortgage. A home worth $300,000 with a $100,000 remaining mortgage might let you borrow $80,000 to $155,000, depending on the lender. Home equity loans often allow you to borrow more than reverse mortgages because you are committing to monthly payments.

Interest rates and costs

Home equity loans typically carry lower interest rates than reverse mortgages. As of 2024, home equity loan rates often fall between 7 and 10 percent, while reverse mortgage rates often range from 8 to 11 percent — though both vary by lender and market conditions. The difference matters over time: a lower rate means less money owed.

Reverse mortgages have higher upfront costs. You pay an origination fee (often 1 to 2 percent of the loan amount), mortgage insurance (usually 0.5 to 2.5 percent upfront, plus an annual fee), and closing costs. These can total $6,000 to $15,000 or more on a $200,000 loan. Home equity loans have lower upfront costs — typically $500 to $2,000 in closing fees — but you start making monthly payments right away, so the total cost over time depends on how long you carry the loan.

Monthly payment obligations

This is the sharpest difference between the two. With a reverse mortgage, you make no monthly payment. You owe nothing until you sell the house, move out for more than 12 months, or pass away. This makes a reverse mortgage useful if you are retired and need cash but cannot afford a monthly payment.

With a home equity loan, you make a fixed monthly payment from the moment the loan closes. If you borrow $100,000 at 8 percent over 10 years, you might pay around $1,200 per month. If you cannot afford that payment, a home equity loan is not the right choice. You must be certain you can pay every month, because missing payments can lead to foreclosure — the lender can take your home.

What happens when you sell or move

With a reverse mortgage, the loan becomes due when you sell the house or move out permanently. At that point, the proceeds from the sale pay off what you owe, and any remaining money goes to you or your heirs. If the home sells for less than you owe, the lender absorbs the loss — you or your heirs do not owe the difference. This is called non-recourse protection, and it is a federal requirement for reverse mortgages.

With a home equity loan, you must pay off the remaining balance when you sell. If you sell a house worth $400,000 and still owe $80,000 on the home equity loan, that $80,000 comes out of your sale proceeds. You are responsible for the full amount; the lender does not absorb any shortfall.

Ongoing costs and responsibilities

Both a reverse mortgage and a home equity loan require you to keep paying property taxes, homeowners insurance, and HOA fees if you have them. If you stop paying these, the lender can foreclose. With a reverse mortgage, the lender may also require you to maintain the home in good condition and may conduct periodic inspections. Some reverse mortgages include a requirement to pay a servicing fee each month (usually $30 to $35), even though you are not making a loan payment.

With a home equity loan, your obligations are simpler: make your monthly payment and keep up with taxes and insurance. There are no servicing fees or maintenance inspections.

Frequently Asked Questions

Can I get a reverse mortgage if I still owe money on my original mortgage?

Yes, but you must use part of the reverse mortgage proceeds to pay off the remaining balance on your original mortgage. This reduces the amount available to you. For example, if your home is worth $300,000 and you owe $80,000 on your original mortgage, the reverse mortgage might let you borrow $150,000, but $80,000 of that goes to paying off the first mortgage, leaving you $70,000 in cash.

What happens to my reverse mortgage if I move into a nursing home?

If you move into a nursing home or assisted living facility and do not return home within 12 months, the reverse mortgage becomes due. Your home would need to be sold to repay the loan. Some people keep a reverse mortgage in place while in temporary care, hoping to return home within the year.

Can I pay off a reverse mortgage early?

Yes. You can pay off a reverse mortgage at any time without penalty. Some people do this if they receive an inheritance or decide to sell the home sooner than expected. With a home equity loan, you can also pay early without penalty, though you should confirm this with your lender.

Which option is better if I need money now but want to stay in my home?

A reverse mortgage is designed for this situation — you get cash without a monthly payment. A home equity loan requires monthly payments, so it works only if you have steady income to cover them. If you are retired and cannot afford a monthly payment, a reverse mortgage is the better fit.

What if I want to leave my home to my heirs?

With a reverse mortgage, your heirs can keep the home by paying off the loan balance, usually from the sale proceeds or from their own funds. With a home equity loan, your heirs inherit the home but must also pay off the remaining loan balance. In both cases, the loan must be settled before the home can be transferred.