Reverse mortgage or home equity loan: what's the difference?

How do you get the money?

A home equity loan pays you one lump sum. It usually has a fixed rate, so your monthly payment doesn't change. A reverse mortgage can pay you in several ways, including a lump sum, monthly amounts or a line of credit.

Do you make monthly payments?

With a home equity loan, yes, for the whole term. The CFPB notes these loans are usually paid back over a shorter period than a 30-year mortgage, so payments can be larger than you expect. If you still have a first mortgage, you pay both.

With a reverse mortgage, there's no monthly mortgage payment. You still pay property taxes, homeowners insurance and upkeep.

Which costs less?

A home equity loan might be the cheaper way to borrow, the CFPB says, but it carries its own risks and depends on your income and credit. Reverse mortgage closing costs are typically higher, largely because of the mortgage insurance borrowers pay.

What happens to what you owe?

Each payment on a home equity loan lowers the balance. A reverse mortgage works the other way: interest and fees are added each month, so the balance goes up over time and is repaid all at once when you no longer live in the home.