Reverse mortgage vs. home equity loan vs. HELOC: Which is best?

Core Insights - Home equity serves as a significant financial asset for homeowners, providing options like reverse mortgages, home equity loans, and home equity lines of credit to access cash without selling the property [1][18]. Reverse Mortgages - A reverse mortgage allows homeowners aged 62 and older to borrow against their home equity without requiring monthly payments until they sell, move out, or pass away [3][19]. - The repayment structure of reverse mortgages can lead to accumulating interest, potentially reducing the homeowner's equity over time [4][24]. - Eligibility for reverse mortgages includes owning the home outright or having a minimal mortgage balance, along with maintaining property taxes and insurance [3][4]. Home Equity Loans - Home equity loans provide a fixed sum at a fixed interest rate, requiring regular monthly payments over a term of 5 to 30 years [8][9]. - These loans are typically used for significant expenses such as home renovations or debt consolidation, and they often have lower interest rates compared to unsecured loans [9][10]. - Defaulting on a home equity loan can result in foreclosure, as the home serves as collateral [9][13]. Home Equity Lines of Credit (HELOC) - A HELOC offers a revolving line of credit based on home equity, allowing homeowners to borrow as needed during a draw period, usually up to 10 years [11][21]. - Unlike home equity loans, HELOCs do not provide a lump sum upfront and only require interest payments during the draw period [11][12]. - The flexibility of HELOCs can lead to overspending, and they typically have variable interest rates, which can increase over time [21][22]. Comparison of Options - Reverse mortgages are best suited for retirees needing cash flow without immediate repayment, while home equity loans are ideal for those with specific large expenses [19][23]. - HELOCs provide ongoing access to funds with borrowing flexibility, making them suitable for homeowners who may need to cover smaller, ongoing expenses [20][22].