Reverse Mortgage vs HELOC: Which Is Better for California Seniors?

I’m Michael DiVita — DRE #01372066 | NMLS #241655, DiVita Home Finance (DRE #01818285 | NMLS #323700), Tiburon, CA. I’ve been in California mortgage lending since 2000 and founded DiVita Home Finance in 2007. I’m known as a creative mortgage broker: when a bank says no, I find the lender and the loan structure that can say yes. I arrange both HELOCs and reverse mortgages, so I don’t have a reason to push one over the other. Call (800) 239-1103.

For California homeowners 62 and older, the core difference is monthly payments: a HELOC requires them, a reverse mortgage doesn’t. A HELOC is cheaper to open and preserves more equity if you can comfortably make the payments; a reverse mortgage costs more upfront but removes the payment, can’t be frozen because home values drop, and on a HECM the unused line grows over time.

Side-by-Side Comparison

When a Reverse Mortgage Makes More Sense

• A fixed income. Adding a HELOC payment on Social Security and retirement distributions can strain the budget — especially when a variable rate rises or the draw period ends and principal payments begin.
• You want to eliminate an existing mortgage payment. A reverse mortgage can pay off your current mortgage (and any HELOC); a HELOC adds a second payment.
• You want a long-term reserve. A HECM line of credit that’s opened early and left alone grows, and it can’t be frozen because home values fall. A HELOC can be — many lenders did exactly that during the 2008–2010 downturn.
• Your documented income is modest. Retirees with plenty of equity but limited income often don’t qualify for a meaningful HELOC.
• You plan to stay in the home for many years, so the higher upfront cost is spread out.
• Your home is worth more than $1,249,125. A jumbo reverse mortgage can use more of your value than a HECM.

When a HELOC Makes More Sense

• You’re under 62 (or your spouse is much younger, which reduces reverse mortgage proceeds).
• You need the money for a few years and have income to make payments comfortably.
• You may sell in the next few years — the HELOC’s lower closing costs usually win.
• Leaving maximum equity to heirs is a priority. Paying as you go keeps the balance down.
• You want to keep an existing low-rate first mortgage and borrow a smaller amount on top.

High-equity homeowners with strong credit may also qualify for higher-leverage HELOCs; see HELOCs in California and 95% CLTV HELOCs.

Quick Decision Guide

Things People Often Miss

• You can’t have both on the same home. A reverse mortgage must be the first lien, so any HELOC is paid off at closing. You can use a HELOC now and move to a reverse mortgage later.
• HELOC payment shock. When the draw period ends (often after 10 years), payments switch to principal and interest and can jump substantially.
• Reverse mortgage obligations. No payment doesn’t mean no obligations: you must keep paying property taxes, insurance and HOA dues and live in the home. Moving out for more than 12 consecutive months, including to a care facility, makes the loan due.
• Taxes. Neither HELOC draws nor reverse mortgage advances are taxable income. HELOC interest is generally deductible only if the money is used to buy, build or substantially improve the home; reverse mortgage interest may be deductible only when it’s actually paid, usually at payoff. Check with your CPA.
• Benefits. Neither affects Social Security or Medicare. For SSI or Medi-Cal, avoid holding large cash balances from either loan past the month you receive it.

Frequently Asked Questions

What is the biggest difference between a reverse mortgage and a HELOC?

Monthly payments. A HELOC requires payments — often interest-only during the draw period, then principal and interest — while a reverse mortgage requires no mortgage payments until the last borrower sells, moves out or dies. You still pay taxes, insurance and upkeep with a reverse mortgage.

Can a HELOC be frozen or reduced?

Yes. Lenders can freeze or reduce a HELOC if your home’s value drops or your finances change. A HECM reverse mortgage line of credit can’t be frozen or reduced for those reasons as long as you meet the loan’s obligations, such as paying taxes and insurance and living in the home.

Can I have a HELOC and a reverse mortgage at the same time?

Not on the same home. A reverse mortgage has to be the first lien, so an existing HELOC is paid off with reverse mortgage proceeds at closing. Many people use a HELOC first and switch to a reverse mortgage later in retirement.

Which costs more?

A HELOC is usually cheaper to open. A HECM has 2% upfront FHA mortgage insurance, an origination fee capped at $6,000 and closing costs, plus 0.5% a year in mortgage insurance. Over a long stay with no payments, though, the reverse mortgage may be the only option that keeps your monthly budget intact.

Which is better for leaving the house to my children?

Usually a HELOC, because you’re paying the balance down instead of letting it grow. With a reverse mortgage, heirs can still keep the home by paying off the loan — on a HECM, at the lesser of the balance or 95% of appraised value — and never owe more than the home is worth.

Related Resources

• Reverse Mortgages in California: Complete Guide
• Jumbo Reverse Mortgages
• HECM for Purchase
• HELOCs in California
• HELOC vs. Cash-Out Refinance
• 95% CLTV HELOCs