Reverse Mortgage vs. HELOC: When Each One is Best

Are you trying to decide between a reverse mortgage and HELOC? Here are some things to consider.


You can Qualify

What stops a lot of seniors from applying for a HELOC is that they simply can’t qualify for one. If you wait until you’re a senior on a fixed income, it’s probably too late. You likely won’t be able to qualify for much HELOC funds on a limited income. However, if you plan ahead and apply for a HELOC while you’re still working, you can probably qualify for quite a bit, especially if you own your home free and clear.

No Immediate Need

If you have no immediate need for funds and just want to have them available for a rainy day, setting up a HELOC can make a lot of sense. Whether it be home renovations or medical expenses, the HELOC funds will be there when you need them. You won’t pay a penny of interest on them until you need them. It can be a great from a peace of mind standpoint.

Leaving Money to your Heirs

A HELOC can be a lot better for leaving money to your heirs than a reverse mortgage. The interest rates on reverse mortgages are almost always higher than a HELOC. As such, when you sell your home or pass away, there can be little to no equity left for loved ones. If gifting equity to loved ones is important to you, then a HELOC can be a much better option.

Reverse Mortgage

You Don’t Want to Make Payments

If your cash flow is tight and you don’t want to make payments on any money that you borrow, a reverse mortgage can be great. Unlike a HELOC, with a reverse mortgage you aren’t required to make any payments while you are still alive and living in the house.

This makes a reverse mortgage a great option for seniors who have built up substantial equity. You can tap into a substantial amount of that equity for immediate use and you don’t need to worry about repaying it until you sell the house or pass away. It’s as simple as that.

You May Be Able to Borrow A lot More

Qualifying for a reverse mortgage is different than a HELOC. While a HELOC is mainly based on your household income and debts, a reverse mortgage doesn’t consider your income. It mainly looks at your property’s value and your age. If you have a limited income, you may be able to qualify to borrow a lot more with a reverse mortgage than you would with a HELOC or regular mortgage.

This can come in handy if you need to do some substantial home renovations to your property. Perhaps you have been putting off much needed home renovations for many years. Maybe you have you need to renovate your home to make it more accessible due to mobility issues. The government offers grants for those, however, it’s often not enough. That’s where a reverse mortgage can come in handy and help close the gap so you can afford to pay for them.

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Smarter Loans Staff

The Smarter Loans Staff is made up of writers, researchers, journalists, business leaders and industry experts who carefully research, analyze and produce Canada's highest quality content when it comes to money matters, on behalf of Smarter Loans. While we cannot possibly name every person involved in the process, we collectively credit them as Smarter Loans Writing Staff. Our work has been featured in the Toronto Star, National Post and many other publications. Today, Smarter Loans is recognized in Canada as the go-to destination for financial education, and was named the "GPS of Fintech Lending" by the Toronto Star in 2019.