HECM vs HELOC Comparison Calculator

Reverse mortgages are quickly gaining acceptance as a viable means to increase income in retirement. And, in many cases, a reverse mortgage is an ideal tool to use - especially when the senior homeowner is confident in their ability to stay in their home seven years or more.

But many senior homeowners have taken out reverse mortgages only to end up paying them off (because of home sale, death, moveout, or other factors) within relatively brief periods. In fact, a 2007 HUD study shows that fewer than half of all HECM reverse mortgages have lasted longer than six years .

For shorter-term financing situations, it may be prudent to consider using a standard interest-only HELOC (home equity line of credit) in lieu of a HECM reverse mortgage. Under such a scenario, the borrower could draw from the line of credit, say, $1,000 each month for living expenses plus an amount sufficient to cover the monthly interest due on the loan. Similar to the way a HECM reverse mortgage works, loan interest would accumulate within the loan balance until it is paid off at the end of the loan period. Obviously, this tactic works only so long as there are adequate funds in the line of credit; for longer periods the strategy fails as HELOC reserves are exhausted while monthly loan interest payments are still payable.

Here are results of one sample scenario showing how a senior needing $1,000 additional monthly income for five years ends up with more home equity remaining at the end of the period using a HELOC rather than a HECM.

The main benefit of a HELOC is that upfront borrowing costs are much lower than a reverse mortgage. The main drawbacks are that 1) payments covering at least the acrued interest on the loan are required each month and, 2) lenders will require upfront proof of ability to repay the loan (including credit score review and income verification). Neither of these factors are issues with a reverse mortgages.

The calculator below can help users make useful comparisons between HELOC and HECM loans. Recognize that in the real world both HECM and HELOC loans almost always have "adjustable" interest rates that change over the life of the loan - a fact that this calculator ignores in order to keep comparisons manageable. Click here for a comprehensive comparison of HECM and HELOC loans .

Like all financial calculators, use it only as a guide and always be certain to get advise from qualified and trusted advisors in all important finacial matters.


The first step is to enter basic information about the value of your home, accumulated home equity and your individual borrowing needs. Hover the cursor over the icon for more information about each item.

Home Value: In this field enter your best estimate of the current market value of your home. If you've have a recent appraisal, use this figure. Otherwise, here are some resources that can give you a good idea of your home's market value:
  • your local tax office
  • local real estate agents
  • real estate ads for similar homes in your neighborhood
  • Zillow.com
Outstanding Mortgage: This is the outstanding balance of your present home mortgage(s) that will be paid off with proceeds from the new loan. You can get this information from your lending bank.

You can also include any lump sum loan withdrwals you think you will take out at loan closing (to pay off credit card debt, for example). Remember, the larger the upfrontloan disbursement, the more interest will accrue from the start of the loan.
Available Equity: This field is automatically computed based on the information you input above. The figure represents the net proceeds you could expect to receive if you sold you home.
Projected Home Appreciation: % / year This is your best estimate of how much your home will appreciate (or depreciate) on an annual basis over the term of the loan. This federal government site provides usefull tools to help you assess home price trends in your area.
Monthly Draw for Living Expenses: Enter in this field the amount you estimate you will need to withdraw each month to help meet your daily living expenses (e.g. $1,000 per month).
Projected Loan Term (months): Enter the number of months you expect to remain in your home - i.e. the number of months you expect the loan to be in place.
Inflation Adjustment*: % / year Enter zero if you intend to withdraw a standard dollar amount (e.g. $1,000) each month. However, if you would like to "ratchet up" withdrawals to account for the rising cost of living, enter the annual percentage increase you think will be needed.


Information about HELOC These fields are where you enter basic information about the home equity line of credit (HELOC) under consideration.

Loan to Value LTV: % Loan to Value is the percentage of currently available home equity the line of credit will be capped at. Most HELOCs have LTV's between 70%-90%. The higher the LTV the riskier the loan from the lender's standpoint and the higher the interest rate will be.
Available Loan Amount: This field is automatically calculated by applying the LTV to available home equity.
Closing Costs: Closing Costs are fees for appraisal, title and other loan paperwork that you will pay from the line of credit. HELOCs generally have low closing costs and you can even find HELOCs with zero closing costs.
Interest Rate: % / year Interest Rate is your best estimate of the average interesst rate that you will be charged over the life of the loan. In reality, HELOCs have variable interest rates that change monthly or quarterly. For this calcultor, however, you will need to project a single average rate for the loan. This interest rate tool provides historical HELOC rate data and may be used as a guide.

2b. HECM

Information about HECM Data for this section will come from a reverse mortgage calculator. This is because reverse mortgages are quite complex involving factors like borrowers' ages and geographic location. We recommend that you use one of these calculators: 1   2   3 and then print out the "Loan Summary" page to get the necessary input information. A more complete list of reverse mortgage calculators can be found at: Reverse Mortgage Lenders Weekly Review.

Available Loan Amount: Available Loan Amount is the "Loan Principal Limit" as shown on the RM Calculator Loan Summary
Closing Costs: Closing Costs is the sum of four items: loan fees to lender, mortgage insurance, other closing costs, and service fee set-aside
Effective Loan Rate: % / year The effective loan rate below equals the current 1-Year Treasury Bond rate index plus a lender's margin (which is currently 1.50% for monthly-adjusting HECMs), plus another one-half of a percent (0.5%) for mortgage insurance.

Bear in mind that just as with HELOC loans, HECMs have adjustable interest rates that will vary over the life of the loan.
LOC Growth Rate: % / year With HECM reverse mortgages, the unused portion of the letter of credit earns interest.


Simply press the button to obtain the comparison results.


Results of your comparison calculation.

Summary of calculation will be present after pressing calculate button.

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