Last updated: July 2026
Quick answer
A reverse mortgage (HECM), a home equity line of credit, and a traditional mortgage can all help finance housing-related goals, but they work differently. A HECM or HELOC may provide access to existing home equity, while a traditional mortgage may finance a purchase or replace an existing loan through refinancing.
Although an FHA-insured HECM does not require monthly principal and interest payments, borrowers must still meet property tax, insurance, maintenance, occupancy, and other loan obligations.
They also have no minimum credit score requirement, but are only available to those 62 and older. A HELOC and a traditional mortgage both require monthly payments and standard credit and income qualification, at any age.
No single option is right for every homeowner. The best fit depends on your age, available equity, credit and income profile, property type, expected time in the home, ability to make monthly payments, and plans for any remaining home equity.
Not sure which option fits your goals? Compare a reverse mortgage, HELOC, and traditional mortgage with GO Mortgage.
Three ways to finance your goals
Older homeowners often compare three options: a reverse mortgage (HECM), a home equity line of credit (HELOC), and a traditional mortgage.
- A HECM is the FHA-insured reverse mortgage available to eligible homeowners age 62 and older. It allows you to access a portion of your home equity without the required monthly principal and interest payments. However, interest and fees are added to the loan balance over time.
- A HELOC is a revolving line of credit secured by your home. It allows qualifying homeowners to borrow against available equity as needed, up to an approved limit. Monthly payment requirements vary during the draw and repayment periods.
- A traditional mortgage may be used to purchase a home or refinance an existing loan. A cash-out refinance can also provide access to home equity. These loans typically require scheduled monthly principal and interest payments.
Each option works differently. The right fit depends on your age, equity, income, ability to make monthly payments, and long-term plans for the home.
How qualifying differs for each loan
Qualification is one of the sharpest differences between these options:
- A HECM has no minimum credit score. Instead, lenders complete a financial assessment reviewing your income, assets, and payment history to confirm you can cover property taxes, insurance, assessments (if any), maintenance, and any other recurring debt payments
- A HELOC lender typically reviews your credit history, verified income, debts, home value, and available equity. Required credit standards vary by lender.
- A traditional mortgage requires a similar credit score and debt-to-income underwriting, regardless of your age
This means homeowners with limited monthly income or an imperfect credit history sometimes qualify for a HECM when they would not qualify for a HELOC or traditional mortgage.
Depending on their circumstances, some borrowers may also explore specialty products such as non-qualified mortgages. These loans have their own qualification standards, costs, and risks and should be evaluated separately.
How payments work for each option
This is often the deciding factor for retirees on a fixed income.
- A HECM does not require a monthly principal or interest payment, as long as you meet your ongoing obligations.
- A HELOC typically allows interest-only payments during an initial draw period, commonlybetween three andten years, before shifting to required principal and interest payments.
- A traditional mortgage requires a monthly principal and interest payment from the start, building equity over time as the balance is paid down.
How each loan is repaid
A HECM is repaid when the borrower sells the home, permanently moves out, or passes away.
An FHA-insured HECM includes non-recourse protection. When the loan becomes due, the borrower or heirs generally won’t have to repay more than the home’s value or applicable sale proceeds from personal assets.
Heirs who want to retain the home may generally satisfy the debt by paying the lesser of the loan balance or 95% of the home’s appraised value.
A HELOC has a defined draw period followed by a repayment period, during which the balance must be paid down according to a set schedule. A traditional mortgage is repaid through fixed monthly payments over its term, such as 15 or 30 years.
What happens if the loan balance grows
With a HECM, the loan balance grows over time since interest and fees accrue without required payments, which reduces the equity remaining in the home.
Unlike a HELOC, an available HECM line of credit generally is not reduced if the home’s market value falls. Access still depends on the borrower’s continued compliance with the loan’s occupancy and property-charge requirements.
Depending on the HECM payment plan, unused borrowing capacity may increase over time. This does not represent interest earned in a savings account and does not increase the home’s equity.
A HELOC’s credit line can be frozen or reduced by the lender under certain market conditions, something that happened broadly during the 2008 financial crisis.
A traditional mortgage balance decreases with each payment, steadily building equity rather than reducing it.
Reverse mortgage vs. HELOC vs. Traditional mortgage
| Feature | FHA-insured HECM | HELOC | Traditional mortgage |
| Required monthly principal and interest payment | No | Usually yes | Yes |
| Credit and income review | HECM financial assessment; no universal FHA minimum score stated | Lender-specific credit, income, and debt review | Loan program and lender-specific underwriting |
| Typical balance behavior | Usually increases as interest, mortgage insurance, and fees accrue | Increases when funds are drawn; decreases with repayment | Usually decreases with scheduled amortizing payments |
| Repayment timing | Generally due after sale, permanent move, death of the last eligible borrower, or another maturity event | Draw period followed by repayment under the agreement | Repaid through scheduled payments or when the home is sold or refinanced |
| Occupancy | Must generally remain the borrower’s principal residence | Depends on the lender and product terms | Depends on the loan’s occupancy classification |
Not sure how the differences in payment, equity, and qualification affect you? Compare your mortgage options with GO Mortgage before choosing a path.
Which loan option might fit your situation?
Each option serves a different purpose. The right fit depends on your age, equity, income, credit profile, property type, and long-term plans.
When might a reverse mortgage make sense?
An FHA-insured Home Equity Conversion Mortgage (HECM) may be worth considering if you’re at least 62, have sufficient home equity, and plan to keep the property as your primary residence.
A HECM does not require monthly principal and interest payments, which may help reduce monthly expenses. However, interest and fees are added to the loan balance over time. This usually reduces the equity available to you or your heirs.
HECMs may also have higher upfront costs than some other mortgage options. You must continue paying property taxes, homeowners insurance, applicable homeowners association dues, and home-maintenance costs.
When might a HELOC make sense?
A home equity line of credit may work well if you want flexible access to equity and can comfortably manage monthly payments.
HELOCs often have variable interest rates, so payments can rise when rates increase. Payment requirements may also change after the draw period ends, when you typically begin repaying both principal and interest.
Under certain conditions allowed by the loan agreement and applicable law, a lender may freeze or reduce the available credit line. A HELOC may be a better fit when you expect to borrow for a shorter-term need and have a clear repayment plan.
When might a traditional mortgage make sense?
A traditional mortgage may be appropriate when you can qualify for and comfortably manage scheduled monthly payments.
The best option depends on what you’re trying to accomplish:
- A purchase mortgage helps finance the purchase of a home.
- A rate-and-term refinance replaces an existing mortgage, often to change the interest rate, loan term, or payment structure.
- A cash-out refinance replaces the existing mortgage with a larger loan and provides part of the difference in cash.
Unlike a HECM, a fully amortizing traditional mortgage generally reduces its principal balance as scheduled payments are made. This may help preserve or build equity over time, although future equity also depends on home values, loan costs, and additional borrowing.
Talk through your options with a specialist
Every homeowner’s income, equity, and goals are different, and comparing these three paths side by side with a specialist is the clearest way to see which fits.
GO Mortgage’s team can walk through your numbers across all three options. Your age, equity, income, property, and long-term plans all matter when comparing these options.
Get started with GO Mortgage to review the potential costs, responsibilities, and tradeoffs with a mortgage professional.
FAQs: Reverse mortgage vs HELOC vs traditional mortgage
Neither option is automatically safer. A HECM does not require monthly principal and interest payments and includes non-recourse protection, but its balance generally grows, and borrowers must continue meeting property obligations. A HELOC usually requires monthly payments, often has a variable rate, and may expose the borrower to payment increases. The better fit depends on your finances and plans.
Yes, if you meet the lender’s credit score, income, and debt-to-income requirements. Retirement income, like Social Security or pension payments, can typically be used to qualify.
A HECM does not create a monthly principal and interest payment history like a traditional mortgage. However, lenders review credit and property charge history during qualification, and failing to meet tax, insurance, occupancy, or other loan obligations can have serious consequences.
A fully amortizing traditional mortgage generally reduces its principal balance as scheduled payments are made, which may help preserve or build equity. A HECM balance typically grows as interest and fees accrue. However, future equity also depends on home values, borrowing activity, loan costs, and the loan’s remaining term.
In many cases, yes, if you meet HECM eligibility requirements at that time. Reverse mortgage proceeds can be used to pay off an existing HELOC balance at closing.
Yes, though the amounts and structures vary. Reviewing closing costs for each option can help you compare the full financial picture, not just the monthly payment.