Reverse Mortgage: HECM or HELOC?

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Home Equity Conversion Mortgages (HECM), also known as reverse mortgages, can be a valuable financial tool for older adults during retirement.  Similar to other financial decisions, you need to determine if it’s the right option for you.  Both a HECM and a Home Equity Line of Credit (HELOC) allow borrowers to access their home equity as usable funds, but there are differences in how the loan is repaid.  Below is information about both loans that can help you decide which loan best suits your needs.

What is a HECM?

A HECM, also known as a reverse mortgage, is a Federal Housing Administration (FHA)1 insured loan available to homeowners 62 and older. It allows borrowers to access a portion of their home equity without having to make monthly mortgage payments.2 Proceeds from the loan can be received as a lump sum,3 monthly payments, or as a line of credit.  Borrowers must continue to pay their property taxes and homeowners insurance.

What is a HELOC?

A HELOC is a loan against the home equity that acts like a credit card: it has a credit limit to borrow against. The borrower must pay all or part of the balance to borrow again up to the credit limit. The draw period usually lasts 5 to 10 years, during which time the borrower is only required to pay interest on money withdrawn. At the end of the draw period, the repayment period starts, and terms can be from 10 to 20 years. During the repayment period, the borrower must pay both principal and interest to pay off the entire loan balance, either through installments or a single payment.

How Does Each Loan Work?

Interest Rates

HECMs are available at fixed and adjustable rates, the line of credit option is only available through an adjustable-rate loan, and the lump sum option is only available with a fixed-rate loan.

HELOC’s are typically adjustable.  The interest rates for a HECM versus a HELOC are comparable.


Upfront costs for a HECM reverse mortgage are significantly higher than they are for a HELOC. Unlike a HELOC, however, there are no draw or utilization fees with a HECM.  In addition, HECMs do not have a set draw period or a limit on the number of draws after the first 12-month disbursement period.  A HECM gives borrowers the flexibility to use the line of credit any time and in any amount until the line of credit is exhausted.

Growth Rate

HECMs offer a feature that is unique to this product – the line of credit growth rate– meaning the unused portion of the line of credit grows regardless of the home’s value.4

With a HELOC, the amount of the initial line of credit does not typically change.  In addition, the lender can reduce or cancel the line of credit under certain circumstances.


With a HECM, the borrower doesn’t have to make any monthly mortgage payments.2 Typically the loan does not come due until the borrower moves, sells the home, or passes away.

Borrowers with a HELOC must pay back any funds borrowed, plus interest, within the repayment period.

Both products have pros and cons, so choosing the product that’s right for you depends on your financial goals. If you’re a senior homeowner looking to use a line of credit from your home’s equity, consider a reverse mortgage. Try our reverse mortgage calculator above or call 1 (800) 976-6211 to speak with a licensed loan advisor.


1 As required by the Federal Housing Administration (FHA), you will be charged an initial mortgage insurance premium (MIP) at closing and, over the life of the loan, you will be charged an annual MIP based on the loan balance.

2 Your current mortgage(s) and any other existing liens against the property must be paid off at or before closing. You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.

3 The funds available to the borrower may be restricted for the first 12 months after loan closing, due to HECM reverse mortgage requirements.  In addition, the borrower may need to set aside additional funds from the loan proceeds to pay for taxes and insurance. This disbursement option is only available for a fixed-rate loan.

4 The reverse mortgage loan balance grows at the same rate as the available line of credit. Line of credit growth occurs and is only a benefit when a portion of the line of credit is not used. The unused line of credit grows over time and more funds become available during the life of the loan.