Reverse Mortgage vs. HELOC: Which One Actually Makes Sense After 62?

I had a detailed conversation with a 68-year-old client who had significant equity in her home, roughly $600,000, and was trying to decide between a reverse mortgage and a HELOC to supplement her income in retirement. She'd heard very different things from different people, including some strong opinions in both directions, and was genuinely uncertain about which one served her situation.

This is exactly the kind of decision that deserves a careful, side-by-side analysis, not a reflexive answer based on what's most familiar.

How a HELOC Works After 62

A HELOC, Home Equity Line of Credit, lets you borrow against your home equity up to a lender-approved limit, with a draw period (typically 10 years) followed by a repayment period (typically 20 years). During the draw period, you pay interest only on what you borrow. After the draw period, you repay principal and interest.

The appeal: flexibility. You draw what you need, when you need it, and the interest rate is typically variable (sometimes with a fixed-rate conversion option). The risk: if cash flow tightens in retirement and you can't make payments, you could face foreclosure. Lenders also have the right to freeze or reduce the line during economic stress.

A HELOC gives you flexibility and lower initial costs, but it requires ongoing monthly payments that can create real pressure in a fixed-income retirement.

How a Reverse Mortgage Works

A HECM (Home Equity Conversion Mortgage), the most common federally insured reverse mortgage, allows homeowners 62 and older to access home equity with no required monthly payment. The loan balance grows over time as interest accrues. Repayment is triggered when the owner sells the home, moves out permanently, or passes away.

You continue to own the home. You must maintain it, pay property taxes, and maintain insurance. Non-compliance with these obligations can trigger the loan's due-and-payable clause.

The Key Differences That Drive the Decision

Cash flow: a reverse mortgage requires no monthly payment; a HELOC does. Time horizon: a HELOC has a defined draw and repayment period; a reverse mortgage continues until the home is sold or vacated. Cost: reverse mortgages have higher upfront costs (origination fees, mortgage insurance). Flexibility: HELOCs offer a revolving credit line with more flexible draw amounts.

The right tool depends on how long you plan to stay, whether you can manage monthly payments, and how much flexibility your retirement income plan actually needs.

My General Take

For clients who intend to stay in the home long-term and want to eliminate the risk of a monthly payment in retirement, a reverse mortgage can be a sound tool, particularly when used as a strategic income backstop rather than a first resort. For clients with strong cash flow who need short-term liquidity or expect to sell within several years, a HELOC is often more cost-effective. The answer requires modeling your specific income, home value, and plan.