For homeowners 62 and older, tapping home equity for retirement usually comes down to three choices: a Home Equity Conversion Mortgage (HECM), a home equity line of credit (HELOC), or a cash-out refinance. The right pick depends less on who offers the lowest rate and more on whether you want no monthly payments, a flexible line, or a single lump sum — and how much you care about protecting your heirs' inheritance.
Your equity is one of the largest assets you own, but the way you unlock it changes your monthly budget, your tax picture, and what your family inherits. A HECM lets you convert equity into cash without a required monthly payment — interest simply accrues and the balance grows (CFPB). A HELOC gives you a revolving line, but payments pause only during the draw period and resume once repayment begins. A cash-out refinance hands you a lump sum, but it is a conventional mortgage with mandatory payments. This guide breaks the three apart so you can match one to your situation — not to a sales pitch.
How the three options stack up
Buyer concern | HECM reverse mortgage | HELOC | Cash-out refinance |
|---|---|---|---|
The key question it answers | Can I get cash without a monthly payment? | Can I draw funds as needs come up? | Do I want a lump sum on one fixed loan? |
Age requirement | 62+ — required by law (CFPB) | None, but underwriting and income matter | None, but credit and income matter |
Monthly payments | Optional by design; interest accrues (CFPB) | Interest-only during draw, then principal + interest | Required for the full life of the new loan |
Effect on equity over time | Balance grows, equity shrinks | Stable unless you draw; dips while drawn | Stable; you owe the new balance |
Best for | Retirees who need steady cash flow and want to stay put | Households that need a flexible reserve | Borrowers who want the lowest rate on a big lump sum |
Main limitation | Growing balance cuts the inheritance you leave | Payment shock when repayment begins | You take on a fresh mortgage with payments |
These are the three levers available to most homeowners 62 and older, and each trades a different cost for the cash it frees. On the pages that follow, I go through what each one really costs, when it shines, and where the fine print hides.
The reverse mortgage reality check
The most talked-about option is the HECM — the only reverse mortgage backed by the federal government (CFPB). It is a special home loan that lets you borrow against your equity without making monthly mortgage payments and, critically, you keep title to the house (CFPB). The catch is invisible at closing: interest and fees are added to the balance each month, so what you owe rises over time even while you are not paying a dime.
HELOC vs. HECM: the payment gap
A HELOC is a revolving line of credit secured by your home, much like a credit card with your equity as the limit. Most HELOCs pair a 10-year draw period with a ~20-year repayment period — during the draw, you can borrow, repay, and re-borrow, but once repayment begins, new borrowing stops and your payment rises because you must repay both principal and interest (Lower Mortgage).
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