You can release equity from your house in three main ways: a reverse mortgage, a home equity loan, or a home equity line of credit (HELOC). Each lets you borrow against the difference between your home’s value and what you still owe, but they differ sharply on age requirements, whether you make monthly payments, and how much the borrowing costs over time. Which one fits depends on your age, how much equity you’ve built, and whether your budget can absorb a new monthly payment.
The Three Ways to Tap Your Home’s Equity
A reverse mortgage is designed for older homeowners. The federally insured version, called a Home Equity Conversion Mortgage (HECM), is available to homeowners 62 and older and lets you convert part of your equity into cash with no monthly loan payments.1Federal Trade Commission. Reverse Mortgages Interest accrues onto the balance, and the loan doesn’t come due until the last borrower dies, sells, or moves out permanently. Some private reverse mortgages accept borrowers as young as 55, but those aren’t federally insured and carry different terms.
A home equity loan pays you a fixed lump sum at a fixed interest rate, repaid in equal monthly installments over a set period, typically 5 to 30 years. You know the payment and payoff date from day one.
A HELOC works more like a credit card secured by your house. You get a revolving credit line, draw from it as needed, and pay interest only on what you use, usually at a variable rate. Both home equity loans and HELOCs require monthly payments and are open to homeowners of any age, but lenders generally expect you to keep at least 20 percent equity in the home after borrowing.1Federal Trade Commission. Reverse Mortgages
The quick way to sort them: if you’re 62 or older and want to stop making a mortgage payment, look at a reverse mortgage. If you need a predictable lump sum for a defined expense, a home equity loan matches that shape. If you want flexibility to borrow, repay, and reborrow over years, a HELOC does that.
Who Qualifies
For a HECM reverse mortgage, you must be at least 62, and the home must be your principal residence, meaning where you live most of the year.2Consumer Financial Protection Bureau. Can Anyone Take Out a Reverse Mortgage Loan Vacation homes and rental properties don’t qualify. You either need to own outright or have paid the mortgage down enough that the reverse mortgage proceeds can wipe out the existing balance at closing, because the reverse mortgage lender needs the first lien. Delinquent federal debt, such as unpaid taxes, is disqualifying.1Federal Trade Commission. Reverse Mortgages
Eligible property types include single-family homes, two-to-four-unit buildings where you occupy one unit, HUD-approved condominiums, and manufactured homes that meet FHA standards. For 2026, the maximum home value that counts toward the HECM calculation is $1,249,125; equity above that cap doesn’t increase what you can borrow.3U.S. Department of Housing and Urban Development. HUDs Federal Housing Administration Announces 2026 Loan Limits
A low credit score won’t automatically block a reverse mortgage, but the lender will check that you have the financial capacity to keep paying property taxes and homeowners insurance. Federal rules also require you to complete a session with a HUD-approved counselor before applying; the lender must give you a list of approved agencies at first contact.4eCFR. 24 CFR 206.41 – Counseling The counselor walks you through payment options, costs, and estate impact, and screens you for public benefits that could reduce your need to borrow. You get a certificate the lender needs for your application.
Home equity loans and HELOCs have no age floor. Lenders look at your credit, income, and the amount of equity remaining after the new loan. The 20 percent equity cushion is the typical bar.
How the Money Comes to You
Home equity loans arrive as a single lump sum at closing. HELOCs give you a credit line you can draw against during a draw period, followed by a repayment period.
HECM borrowers pick from several disbursement structures, and the choice affects how much interest accrues:5Consumer Financial Protection Bureau. How Much Money Can I Get With a Reverse Mortgage Loan and What Are My Payment Options
- Lump sum at a fixed rate. Interest starts accruing on the whole balance immediately, so this is the most expensive option over time, and the total available is often lower than under other structures.
- Line of credit at an adjustable rate. You draw as needed, pay interest only on what you’ve taken, and the unused portion grows over time, increasing what’s available later.
- Monthly payouts at an adjustable rate. A tenure payout keeps coming as long as you live in the home; a term payout runs for a fixed number of years you choose.
- A combination of a line of credit with monthly payouts.
A line of credit or monthly payout generally costs less than a lump sum because interest only accrues on money you’ve actually received. Before funds are released, any existing mortgage balance, accrued interest, and title-clearing costs are paid off the top so the reverse mortgage lender ends up in first lien position. Whatever remains reaches you by electronic transfer, certified check, credit line, or scheduled payouts, depending on your choice.
What It Costs
A reverse mortgage carries the heaviest fee load of the three:
- Origination fee, capped by HUD at the greater of $2,500 or 2 percent of the first $200,000 of appraised value plus 1 percent above that, with a $6,000 ceiling.
- Upfront FHA mortgage insurance premium of 2 percent of the maximum claim amount, paid at closing. This insurance guarantees your payments continue if the lender fails and ensures the loan balance never exceeds the home’s value.
- Annual mortgage insurance premium of 0.5 percent of the outstanding balance, added to the loan each year.
- Appraisal fee, typically $300 to $425 for a standard single-family home, paid upfront.
- Closing costs including title search, title insurance, and recording fees, which vary by location.
You can roll these costs into the loan instead of paying out of pocket, but doing so reduces the equity available to you and increases the interest that accrues over the life of the loan. Home equity loans and HELOCs have their own closing costs, but they don’t carry the FHA insurance premiums that come with a HECM.
Your Right to Cancel
After closing on a reverse mortgage, federal law gives you three business days to cancel without penalty. This right of rescission runs until midnight of the third business day after signing.6Consumer Financial Protection Bureau. Regulation Z 1026.23 – Right of Rescission7Consumer Financial Protection Bureau. Can I Ever Waive My Right to Rescind on My Mortgage Loan If you don’t cancel in that window, the loan moves to funding. The same rescission right generally applies to home equity loans and HELOCs taken against your primary residence.
What You Still Owe After Borrowing
A reverse mortgage ends your monthly mortgage payment, but it doesn’t end your obligations as a homeowner. You must keep paying property taxes, homeowners insurance, flood insurance if applicable, and any HOA dues, and you must maintain the home. Falling behind on any of these can trigger default and foreclosure even though there’s no monthly loan payment.8Consumer Financial Protection Bureau. You Have a Reverse Mortgage – Know Your Rights and Responsibilities
If the servicer notifies you of a needed repair, you generally have 60 days to start the work.8Consumer Financial Protection Bureau. You Have a Reverse Mortgage – Know Your Rights and Responsibilities The home has to stay your principal residence. Moving into a nursing home or long-term care facility for more than 12 consecutive months typically makes the loan due and payable.
Taxes and Government Benefits
Reverse mortgage proceeds are not taxable income. The IRS treats the money as a loan advance, not earnings, so it won’t push you into a higher bracket or generate a federal tax bill.9Internal Revenue Service. For Senior Taxpayers Interest generally isn’t deductible while it accrues; you can only deduct it once it’s actually paid, usually when the loan is paid off, and only if you used the money to buy, build, or substantially improve the home securing the loan. Interest on funds spent on living expenses or medical bills isn’t deductible.10Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction
Even though proceeds aren’t income, they can affect means-tested benefits like Supplemental Security Income and Medicaid. SSI has a resource cap of $2,000 for individuals and $3,000 for couples in 2026, and money sitting in your account at the end of the month counts as a resource regardless of where it came from.11Social Security Administration. 2026 Cost-of-Living Adjustment (COLA) Fact Sheet A lump sum is the riskiest choice if you rely on SSI or Medicaid because it lands in your account all at once. A line of credit or monthly payout, spent within the reporting month, keeps countable assets under the threshold. Raise this with your counselor before choosing a payout structure.
What Happens to the Home Later
With a home equity loan or HELOC, you’re making monthly payments and the loan is retired on a normal schedule. With a reverse mortgage, the balance grows and comes due when the last surviving borrower dies, sells, or moves out.
When that happens, the lender sends a notice to your estate within 30 days and has the property appraised. Your heirs then choose among paying off the loan and keeping the home, selling it, or walking away.12Consumer Financial Protection Bureau. With a Reverse Mortgage Loan, Can My Heirs Keep or Sell My Home After I Die If the balance is higher than the home’s value, they can sell for at least 95 percent of the appraised value and mortgage insurance covers the rest. HECMs are non-recourse loans, so neither you nor your heirs will ever owe more than the home is worth, even if the balance has grown past the property’s value.
If the balance isn’t paid, the lender must begin foreclosure within six months of the borrower’s death, but heirs actively working to sell or refinance can request two 90-day extensions.12Consumer Financial Protection Bureau. With a Reverse Mortgage Loan, Can My Heirs Keep or Sell My Home After I Die
A spouse under 62 who isn’t on the loan can have some protection to remain in the home after the borrowing spouse dies, but only if they meet specific HUD conditions, including obtaining legal ownership or a life estate and continuing to pay taxes, insurance, and upkeep.13eCFR. 24 CFR Part 206 Subpart B – Eligible Borrowers If those conditions aren’t met, the loan becomes due when the borrower dies. Ask about non-borrowing spouse rules before signing if this applies to you.