Key Takeaways
- Reverse mortgages offer flexible access to equity over time, while HEIs provide a one-time lump sum.
- Reverse mortgages accrue interest and fees, but HEIs cost depends on how much your home appreciates.
- The better option depends on your age, timeline, and need for flexibility.
See if a home equity investment fits your situation
Homeowners with significant equity often look for ways to turn that value into cash without taking on a traditional home equity loan or HELOC. Two alternatives you may encounter are reverse mortgages and home equity investments (HEIs).
At first glance, they can seem similar. Both allow homeowners to access equity without making their monthly mortgage payments. But the way each option delivers the funds and how those funds get repaid is very different.
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What is a reverse mortgage?
A reverse mortgage allows homeowners age 62 or older to borrow against their home equity without making monthly mortgage payments. The most common type is the FHA-insured Home Equity Conversion Mortgage (HECM).
See if you qualify for a reverse mortgage. Start here
Instead of paying the lender each month, the loan balance grows over time as interest and mortgage insurance are added. The loan typically becomes due when the borrower sells the home, moves out permanently, or passes away.
Reverse mortgages are designed for older homeowners who plan to stay in their homes and want to use their equity to supplement retirement income, cover long-term care costs, or create a financial buffer.
How reverse mortgage funds are drawn
One of the most important, and often misunderstood, aspects of a reverse mortgage is how the funds are accessed. Depending on the loan type and structure, borrowers can choose from several payout methods:
Reverse mortgage payout methods
For many borrowers, the line of credit is the most appealing feature. With a reverse mortgage line of credit, you only accrue interest on the amount you actually use. Any unused portion remains available and can even grow over time, increasing future borrowing capacity.
What is a home equity investment (HEI)?
A home equity investment isn’t a loan; it’s a contract in which a homeowner receives a lump sum of cash in exchange for giving an investment company a percentage of the home’s future value.
See if a home equity investment fits your situation
Since it’s not a loan, there are no monthly payments and no interest charges. The HEI provider is repaid when the home is sold, refinanced, or the agreement reaches the end of its term, which is often 10 to 30 years. At that point, the homeowner must repay the original investment amount plus the agreed-upon share of the home’s appreciation.
Unlike a reverse mortgage, an HEI typically provides funds as a lump sum payment at closing. Once the money is received, there’s no ability to draw additional funds later. This structure can work well for homeowners who have a specific, one-time expense, like paying off debt or making a major home improvement project.
How HEI funds are accessed
Unlike a reverse mortgage, an HEI typically provides funds as a lump sum payment at closing. Once the money is received, there’s no ability to draw additional funds later. This structure can work well for homeowners who have a specific, one-time expense, like paying off debt or making a major home improvement project.
However, it doesn’t offer the same flexibility as a line of credit. If your circumstances change and you need additional funds down the road, you’ll have to seek out another financing option.
Head-to-head comparison: Reverse mortgage vs HEI
| Feature | Reverse Mortgage (HECM) | Home Equity Investment (HEI) |
|---|---|---|
| Age requirement | 62 or older | None (varies by provider) |
| Monthly payments required | No | No |
| How funds are accessed | Lump sum, line of credit, monthly payments, or combination | One-time lump sum only |
| Cost structure | Interest accrues on balance + mortgage insurance | Share of home’s future appreciation |
| Consumer protections | FHA non-recourse guarantee (can’t owe more than home is worth) | Varies by provider (private contract) |
| Repayment trigger | Sale, move-out, or death | Sale, refinance, or end of term (10-30 years) |
| Credit requirements | No minimum score (but financial assessment required) | Often 500+ (more flexible than traditional loans) |
| Best for | Seniors who want flexible, ongoing access to equity | Homeowners who need a one-time lump sum without debt |
The difference between a reverse mortgage and an HEI
The biggest difference between a reverse mortgage and an HEI lies in how equity is used over time. With a reverse mortgage, equity is accessed gradually. Borrowers can choose when and how much to draw, particularly with a line of credit. Because interest accrues only on funds actually used, drawing slowly can help manage long-term costs.
With an HEI, equity is effectively monetized upfront. The homeowner receives a lump sum in exchange for giving up a portion of future home appreciation. The cost of the HEI depends largely on how much the home’s value increases over time, not on how long the homeowner waits to access the money.
See if a home equity investment fits your situation
Costs and long-term tradeoffs
Reverse mortgages come with upfront and ongoing costs, including origination fees, closing costs, and FHA mortgage insurance. Interest accrues over time, increasing the loan balance. However, only drawing funds as needed can help limit how quickly that balance grows.
HEIs don’t charge interest or require monthly payments, which can make them feel less expensive on the surface. But the real cost is tied to future home appreciation. In a strong housing market, the amount owed to the HEI provider can far exceed the original investment. For a detailed breakdown of how HEI costs add up, see our guide on the true cost of a home equity investment.
It’s also worth noting that FHA-insured reverse mortgages include consumer protections, like non-recourse rules that prevent borrowers or heirs from owing more than the home is worth. HEIs operate under private contracts, and protections vary by provider.
Reverse mortgage vs HEI: Which option makes more sense?
See if a home equity investment fits your situation
A reverse mortgage may be a better fit for homeowners who:
- Are age 62 or older and plan to age in place.
- Want flexible access to funds over time.
- Prefer borrowing against equity rather than sharing future appreciation.
- Value FHA consumer protections.
An HEI may make more sense for homeowners who:
- Don’t qualify for a reverse mortgage.
- Need a one-time lump sum and don’t expect to need additional funds later.
- Plan to sell or refinance within a defined timeframe.
- Are comfortable trading future appreciation for immediate cash.
Still not sure? If you’re over 62 and want flexibility, a reverse mortgage gives you more control over when and how you access funds. If you’re under 62, or need a large lump sum for a specific purpose and don’t qualify for traditional financing, an HEI may be your best alternative. Review the top HEI companies to compare current offers and terms.
The bottom line on a reverse mortgage vs HEI
If you’re comparing a reverse mortgage and HEI, neither option is inherently better. The right choice depends on how you want to access your equity, how long you plan to stay in your home, and how much flexibility you need.
Reverse mortgages function as a long-term, flexible borrowing tool that allows homeowners to draw funds as needed. HEIs function as an equity-sharing transaction that converts future appreciation into cash today.
Your next steps
Choosing between a reverse mortgage and an HEI is a significant decision. Here’s how to move forward with confidence:
- Use the decision guide below to see which option aligns with your situation.
- If reverse mortgage looks right: Talk to a HUD-approved counselor (required before closing a HECM) and check if you qualify.
- If HEI looks right: Compare providers through our top HEI companies guide and check the credit score requirements for your situation.
- If you’re still undecided: Read our deeper analysis on whether an HEI is a good idea in today’s market for more context on the tradeoffs.
Not sure which option fits your situation?
Choosing between a reverse mortgage and a home equity investment isn’t always obvious. This quick guide helps you compare both—based on your goals, timeline, and financial profile.
Download the decision guide
FAQ
Time to make a move? Let us find the right mortgage for you
A reverse mortgage is a loan for homeowners 62+ that accrues interest over time, while a home equity investment (HEI) gives you cash in exchange for a share of your home’s future value.
It depends on your situation. Reverse mortgages are often better for older homeowners planning to stay long-term, while HEIs may suit those who want flexible eligibility and shorter timelines.
No. Both typically allow you to access home equity without monthly payments. However, reverse mortgages accrue interest, while HEIs increase in cost based on your home’s appreciation.
HEIs are generally more flexible with credit and income requirements, while reverse mortgages have stricter eligibility rules but don’t rely as heavily on traditional income metrics.
It depends on your home’s appreciation and how long you keep the agreement. Reverse mortgages grow through interest, while HEIs can become costly if your home value increases significantly.
Not planning for the long term. The biggest costs often show up years later—either through accumulated interest or shared appreciation so it’s important to think beyond the upfront cash.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
By refinancing an existing loan, the total finance charges incurred may be higher over the life of the loan.
