Choosing the right way to access home equity can make a significant difference in your financial well-being.

By George A. Downey

Two popular options are reverse mortgages and home equity lines of credit, or HELOCs. Each provide distinct benefits and experiences. Here’s a clear comparison to help you decide which solution best fits your needs.
Understanding the basics
Reverse mortgage: A loan available to homeowners aged 62 or older that allows you to convert part of your home’s equity into cash and/or a line of credit. Monthly payments are not required and repayment is not due until you sell the home, move out, or pass away.
Home equity line of credit: A revolving line of credit secured by your home’s equity. You can borrow as needed, make monthly payments, and repay the balance over time. HELOCs are available to homeowners of various ages and typically require ongoing payments.
Benefits of a reverse mortgage

  • No monthly payments: You won’t have to worry about monthly loan payments, freeing up your budget for other priorities.
  • Stay in your home: Continue living in your home while accessing its value.
  • Flexible funding options: Choose lump sum, monthly payments, or a line of credit, whatever suits your lifestyle.
  • Protection against market risks: Your funding is assured even if financial markets or real estate values decline. Further, you can never owe more than the property value at the time of repayment.
    What this means for you: If you’re looking to increase and extend retirement finances, a reverse mortgage can improve cash flow and provide additional funds without the stress of monthly payments.
    Benefits of HELOCs
  • Access funds as needed: Draw only what you need, when you need it – ideal for ongoing expenses or unexpected costs.
  • Lower initial costs: HELOCs often have lower upfront fees compared to reverse mortgages.
  • Interest-only payments: During the draw period (typically seven to 10 years), you may only need to pay interest, helping manage cash flow. After the draw period, the credit line is closed and payments increased to repay the balance by the maturity date.
  • Flexibility for all ages: No age restrictions. HELOCs are available to a wider range of homeowners.
    What this means for you: If you want flexible access to funds and are comfortable with monthly payments, and the ability to afford higher payments later, HELOCs offers control and convenience.
    Conclusion
  • Reverse mortgage: Enjoy greater financial freedom and less stress about making payments. You can focus on enjoying your home and retirement.
  • HELOC: Benefit from a revolving credit line that adapts to your changing needs. You can use funds for home improvements, education, or emergencies.
    Both options are designed to help you leverage your home’s value, but the right choice depends on your financial goals, comfort with payments, and circumstances. Both options offer valuable ways to access your home’s equity. By understanding the differences and focusing on your unique needs, you can choose the solution that delivers the greatest benefit and peace of mind.

Other considerations: Eligibility requirements apply. HECM counseling is required. Subject to credit and income approval. You must occupy the residence as your primary home. You must continue to pay for property taxes, insurance payments, homeowners’ association fee, home maintenance costs, and other fees as required. You must have significant cash available for the down payment. The balance of the loan grows over time and interest is charged on the balance. The loan becomes payable when the last borrower on eligible non-borrowing spouse passes away, sells the home, permanently moves out, defaults on taxes, insurance, or maintenance, or otherwise does not comply with the loan terms. 

About the Author: George Downey, CRMP (NMLS ID 10239) is the Regional Senior Vice President of The Federal Savings Bank branch located at 100 Grandview Road, Suite 105, Braintree, MA 02184. Contact Mr. Downey at 781-843-5553 / Cell 617-594-3666 / gdowney@thefederalsavingsbank.com, www.thefederalsavingsbank.com/georgedowney