HEI vs. Reverse Mortgage
The Bottom Line
- Neither has a monthly mortgage payment. They're the only two ways to tap your home equity without one, though property taxes, insurance, and HOA dues are still yours to pay.
- The mechanics are fundamentally different. A reverse mortgage is compounding debt that grows regardless of your home's value. An HEI is a fixed share of your home's value at the time you settle.
- There's no fixed answer for which costs less. It depends on how long you hold it, how your home's value moves, and even how you draw the money.
- Draw timing matters most for an early exit. How quickly you draw a reverse mortgage's line of credit makes a real difference in its effective rate if you exit within several years, but the options converge over a longer hold — see Which Costs Less below.
- Eligibility differs sharply. A reverse mortgage requires you to be 62 or older and keep the home as your primary residence. Most HEI providers have neither restriction.
When Each One Makes More Sense
A Reverse Mortgage May Be a Better Fit If
- You're worried about outliving a 10-year or 30-year HEI (see Term Risk by Age below)
- You're older with a lower existing mortgage balance, a combination where a reverse mortgage tends to make more cash available (see Cash-Out Availability below)
- You want to draw funds gradually over time instead of taking a lump sum, an option not available with an HEI
- A line of credit that keeps growing on the unused portion appeals to you (see How a Reverse Mortgage Works below)
- Your credit score is too low for any HEI provider (<500). A reverse mortgage has no minimum score, just a financial assessment of your ability to cover taxes and insurance
- You want to eliminate your monthly mortgage payment entirely. A reverse mortgage pays off your existing mortgage at closing, while an HEI leaves it in place (see Cash-Out Availability below)
An HEI May Make More Sense If
- You're under 62 and don't qualify for a reverse mortgage
- You wouldn't pass a reverse mortgage's financial assessment of your income and ability to cover taxes and insurance
- You're confident you can sell, refinance, or settle up by the end of an HEI's term of 10 or 30 years
- You're younger with a higher existing mortgage balance, a combination where an HEI tends to make more cash available (see Cash-Out Availability below)
- You plan to stop living in the home before you're ready to sell it — a reverse mortgage comes due once you move out, while most HEI providers are more flexible about occupancy
- You want to keep your existing mortgage in place, especially if it has a low rate. A reverse mortgage would require paying it off, whereas an HEI doesn't
- You don't expect your home to appreciate much, or think it could decline in value, since a reverse mortgage's balance keeps growing regardless while an HEI's payoff barely grows in that scenario (see Which Costs Less below)
One caution that applies either way: proceeds from either product, whether a reverse mortgage draw or an HEI's lump sum, generally aren't counted as income for need-based programs like Medicaid or SSI, but they can count as an asset if not spent within the month you receive them. That can affect your eligibility if you aren't careful about timing and drawdown. Talk to an elder law attorney or benefits counselor before assuming either one is neutral for your situation.
See What You Might Qualify For
An HEI has no age requirement and no monthly payment. Enter your home details to see what you'd actually owe.
Quick Comparison
Both let you turn home equity into cash with no monthly payment. Past that, they work very differently:
| HEI | Reverse Mortgage | |
|---|---|---|
| Monthly payment | ✓ None | ✓ None |
| Available under age 62 | ✓ Yes, no age limit | ✗ Must be 62 or older |
| Works for second homes or rentals | ✓ Yes, with most providers | ✗ Primary residence only |
| Keeps your existing mortgage in place | ✓ Yes, sits behind it | ✗ Must be paid off at closing |
| Income verification | ✓ Not required, with most providers | ✗ Financial assessment required |
| Multiple ways to receive funds | ✗ Lump sum only | ✓ Lump sum, credit line, or monthly payments |
| Unused funds grow over time | ✗ Not applicable | ✓ Yes, with the line-of-credit option |
Neither is a strict upgrade over the other. See When Each Makes Sense above and Detailed Comparison below for the full picture.
How a Reverse Mortgage Works
A reverse mortgage lets homeowners 62 or older borrow against their equity with no monthly payment required. This guide focuses on the Home Equity Conversion Mortgage (HECM), the federally backed version and by far the most common type.
Ways to Receive Funds
A HECM offers four ways to receive funds: a lump sum, a line of credit you draw from as needed, term payments (fixed monthly payments for a set number of years), or tenure payments (fixed monthly payments for as long as you live in the home). The line of credit has an unusual feature: the unused portion grows over time, at the same rate the loan itself accrues, increasing how much you can draw later even though you haven't touched it.
Ongoing Obligations
You don't make monthly payments, but you're still responsible for property taxes, homeowners insurance, and upkeep. Falling behind on any of those can trigger foreclosure, the same as with any home-secured loan. Before applying, HUD requires an independent counseling session so you understand the terms.
When the Loan Comes Due
The loan becomes due when you sell, move out of the home for more than 12 consecutive months, or pass away. Because it's FHA-insured, you (or your heirs) will never owe more than the home is worth at the time of repayment, even if the balance has grown past that.
Paying off your existing mortgage is one of the biggest differences from an HEI. A HECM requires you to pay off any existing mortgage at closing. If you don't have the cash to cover it, that payoff comes out of your loan proceeds. The larger your existing mortgage balance, the less cash you walk away with. An HEI allows you to keep your existing mortgage. If paying off your existing mortgage isn't your priority, an HEI may get you more cash in hand (see Cash-Out Availability below).
How an HEI Works
A home equity investment (HEI) gives you a lump sum today in exchange for a share of your home's future value. There's no monthly payment, no stated interest rate, and no age requirement. See What Is an HEA? for the full mechanics.
What you eventually owe is a fixed percentage of your home's value at the time you settle, calculated using your requested amount, a provider-assigned multiple, and a cap on how much your share can grow per year. If your home's value doesn't grow, what you owe generally doesn't grow much either, depending on the provider's formula.
Unlike a reverse mortgage, you can only get cash from an HEI in the form of a lump sum payment. HEIs must be paid back within 10 to 30 years depending on the provider, and you settle by selling, refinancing, or buying out the agreement.
An HEI's term limit is one of the biggest differences from a reverse mortgage. A reverse mortgage does not need to be repaid for as long as you live in the home while an HEI has a hard deadline. This can become a problem if you outlive the HEI's term while still needing to stay in your home. You could be forced into a sale, refinance, or buyout earlier than you'd like.
Which Costs Less: Reverse Mortgage or HEI?
Which one actually costs less isn't a fixed answer. It depends on several factors, including:
- Home price growth
- When you repay
- When you withdraw funds (reverse mortgage line of credit allows draws over time)
- Interest rates (reverse mortgage line of credit has a variable interest rate)
The best way to evaluate cost differences is to consider multiple scenarios. Using the following assumptions, we compare costs across a range of exit years for four scenarios in the tables below.
Scenarios
- Reverse mortgage line of credit, drawn ASAP — 60% at closing, remainder at month 13
- Reverse mortgage line of credit, drawn evenly over 5 years — $10,000/year
- Splitero's HEI, 0% home price growth
- Splitero's HEI, 3.5% home price growth
Effective APR is the yearly growth rate of what you'd owe, expressed the same way a loan's interest rate is. Neither product states one upfront, so we compute it from each scenario's actual terms to make them directly comparable.
Scenario assumptions
- $500K home
- $50K requested
- No existing mortgage
- 6.80% adjustable rate
Effective APR
| Exit Year | LOC — ASAP | LOC — Evenly, 5 yrs | HEI, Flat Market | HEI, 3.5% Growth |
|---|---|---|---|---|
| Year 5 | 14.54% | 19.94% | 17.05% | 21.15% |
| Year 10 | 10.99% | 12.31% | 8.19% | 11.98% |
| Year 20 | 9.26% | 9.67% | 4.02% | 7.66% |
| Year 30 | 8.68% | 8.91% | 2.66% | 6.25% |
Total Dollars Owed
| Exit Year | LOC — ASAP | LOC — Evenly, 5 yrs | HEI, Flat Market | HEI, 3.5% Growth |
|---|---|---|---|---|
| Year 5 | $98,566 | $89,150 | $100,000 | $118,769 |
| Year 10 | $141,829 | $128,280 | $100,000 | $141,060 |
| Year 20 | $293,657 | $265,604 | $100,000 | $198,979 |
| Year 30 | $608,015 | $549,932 | $100,000 | $280,679 |
Observations
- At a short, 5-year exit, a reverse mortgage can beat the HEI on both rate and total dollars.
- Drawing from a reverse mortgage over time reduces total cost, but that advantage shrinks as your existing mortgage balance grows.
- Under average growth (3.5%/year), the HEI becomes cheaper than either reverse mortgage option beyond year 10.
- In a flat market, the HEI pulls ahead even sooner.
Your own numbers — home value, mortgage balance, and requested amount — will change these results. Run them with the HEI vs. Reverse Mortgage Calculator.
Does Term Risk Change With Age?
Term risk is the chance you'll outlive an HEI's fixed term while still needing to stay in your home. Using average U.S. life expectancy as an illustrative guide, a 10-year HEI term is a real risk at 65, a smaller risk at 75, and statistically safe — though not risk-free — by 85. A 30-year term is comfortably safe at any of these ages.
Age 65
Avg. Life Expectancy: 19 years
- 10-Year HEIRisky
- 30-Year HEILow Risk
Age 75
Avg. Life Expectancy: 12 years
- 10-Year HEISome Risk
- 30-Year HEILow Risk
Age 85
Avg. Life Expectancy: 7 years
- 10-Year HEILow Risk*
- 30-Year HEILow Risk
These life expectancy figures are illustrative U.S. averages and don't reflect your own health or family history. At 85 specifically, a 10-year term outlasts average life expectancy, but a meaningful share of 85-year-olds live well past 95. "Low risk" isn't "no risk."
A reverse mortgage has no term at all — it's only due when you sell, move out for more than 12 consecutive months, or pass away. If you're younger and an HEI still fits better, matching your term length to a longer-term provider (see When Each One Makes More Sense above) is the way to narrow this risk.
How Much Cash Can You Actually Get?
A HECM requires you to pay off any existing mortgage out of the total amount you're approved to borrow. That means you can qualify for a HECM and still end up with little or no cash in hand — the mortgage gets paid off first, and only whatever's left over comes to you. An HEI doesn't touch your existing mortgage at all. It stays in place, and the HEI sits behind it as a separate lien.
The table below shows how much cash you'd actually receive net of fees on a $500K home, at three existing mortgage balances and, for the HECM, three different ages. The amount you can get from a Splitero HEI doesn't vary by age, so it only appears in one column.
| Existing Mortgage | HECM, Age 65 | HECM, Age 75 | HECM, Age 85 | Splitero HEI |
|---|---|---|---|---|
| 20% LTV ($100K) | $72,000 | $142,000 | $217,000 | $116,762 |
| 40% LTV ($200K) | No Cash Out | $42,000 | $117,000 | $116,762 |
| 60% LTV ($300K) | No Cash Out | No Cash Out | $17,000 | $69,258 |
The pattern comes down to two factors, all else equal:
- Higher age → more likely a reverse mortgage gets you more cash
- Higher existing mortgage balance → more likely an HEI gets you more cash
A 65-year-old with a 40% LTV mortgage gets nothing in cash from a HECM while an 85-year-old with the identical mortgage gets $117,000. Splitero doesn't price by age, so it delivers the same $116,762 whether you're 65 or 85. Even at 60% LTV, where a HECM only works for the oldest borrowers, Splitero still offers a significant amount of cash.
How much a HECM lets you borrow at each age is an illustrative approximation. Get an actual quote for your real numbers.
Even without a significant amount of cash available, a HECM can still be helpful in that it eliminates your existing mortgage payment. If cash in hand matters more than payment relief, an HEI may be the better option in some cases.
Detailed Comparison
| Feature | Reverse Mortgage (HECM) | HEI |
|---|---|---|
| Age requirement | 62 or older | None |
| Monthly payment required | No | No |
| How funds are accessed | Lump sum, line of credit, term, tenure, or a combination | One-time lump sum only |
| Cost structure | Interest plus mortgage insurance, compounding on the amount you've drawn | Fixed share of your home's value at settlement |
| Consumer protections | Non-recourse (never owe more than the home's value); mandatory independent counseling before closing | Typically non-recourse per each provider's own contract |
| Repayment trigger | Sale, moving out for 12+ months, or death | Sale, refinance, or end of term (10–30 years) |
| Credit requirement | No minimum score, but a financial assessment of your ability to pay taxes and insurance is required, and can result in a set-aside that reduces your proceeds | Explicit minimum credit score, as low as 500 with some providers |
| Existing mortgage | Must be paid off or subordinated at closing | Stays in place; the HEI sits behind it |
| Occupancy requirement | Must remain your primary residence | None with most providers — some allow second homes and investment properties |
| Origination fee basis | Based on home value, same regardless of payment option, added to your balance | Based on amount requested, deducted from your proceeds |
| Tax treatment | Interest may be deductible, but generally only if you actually pay it and the funds went toward buying, building, or improving the home | Not classified as interest; tax treatment depends on how your state legally characterizes the agreement |
Tax treatment is genuinely complicated for both products and depends on your state and how you use the funds. Talk to a tax advisor before assuming either one gives you a deduction.
Frequently Asked Questions
Is an HEI always cheaper than a reverse mortgage?
No. It depends on your holding period, which draw timing you choose for the reverse mortgage's line of credit, and whether you're comparing rate or total dollars owed. In our worked example, a reverse mortgage can beat an HEI on both measures at a short, 5-year exit, but Splitero's flat-market HEI becomes the cheapest option on both measures by year 10 and stays that way through year 30. There's no single right answer independent of those variables — see the tables above for the full picture across four scenarios and exit years 5 through 30.
Why does a flat or declining home market favor the HEI?
A reverse mortgage's balance compounds at a fixed rate regardless of what your home is worth. An HEI's payoff is a percentage of your home's value at settlement, so if that value doesn't grow, what you owe doesn't grow much either. Appreciation is the only thing that ever increases an HEI's cost. It has no effect on a reverse mortgage's balance at all. That makes a flat or declining market the scenario where the HEI looks best by comparison.
Will I actually get cash from a reverse mortgage if I still have a mortgage?
Not necessarily. A HECM has to pay off your existing mortgage out of the total amount you qualify to borrow, so a large enough existing balance can leave you with little or nothing left over. You'd still eliminate your monthly mortgage payment even in that case, but if cash in hand is what you need, it may not deliver any. An HEI doesn't touch your existing mortgage. It stays in place as a separate lien, so what you receive isn't reduced by what you still owe. See Cash-Out Availability above for how this plays out by age and mortgage balance.
What happens if I outlive my HEI's term?
You'd need to sell, refinance, or otherwise settle the agreement, even if you'd rather stay in the home. A reverse mortgage has no such deadline. It's only due when you sell, move out for more than 12 consecutive months, or pass away. How real this risk is depends heavily on your age and the term length you choose. See Term Risk by Age above. Matching your horizon to a longer-term HEI provider is one way to narrow the gap. See Choosing a Term Length for the full breakdown of your options.
Can I get an HEI if I'm under 62?
Yes. Most HEI providers have no age requirement at all. A reverse mortgage requires you to be 62 or older, so for homeowners younger than that, an HEI may be the only equity-sharing option available regardless of cost.
Can I ever owe more than my home is worth?
No, for both, though the mechanics differ. A HECM's balance can technically compound past your home's value over time, but because it's FHA-insured, what you or your heirs actually repay is capped at the home's value when it's sold or settled. The difference is covered by FHA mortgage insurance, not by you or your estate. An HEI works differently: what you owe is calculated as a percentage of your home's value at settlement, a share rather than a compounding debt, so it can't exceed the home's value by definition.
Could a lender or provider come after my other assets?
No, for both. That's what "non-recourse" means. Many common debt products, like personal loans and credit cards, are full recourse. If what's collected from you doesn't cover the debt, the lender can still pursue your other assets or income for the difference. A reverse mortgage and an HEI are both non-recourse instead. Repayment is limited to the home itself. For a HECM, that protection is backed by federal FHA insurance. For an HEI, it's typically a contractual term set by each individual provider rather than a government guarantee, but the practical effect for you is the same either way.
Does drawing a reverse mortgage gradually really cost less?
It depends on how you measure it. In total dollars, yes — in our example, drawing the same $50,000 evenly over 5 years instead of all at once saved $13,549 by year 10. But by effective APR, drawing it all upfront actually shows a lower rate, since the math works out differently when more of the balance compounds for longer. See Which Costs Less above for both views.