Home Equity Investment vs Reverse Mortgage: Which Is Better in 2026?

If you're a homeowner sitting on significant equity and you don't want monthly payments, two products stand out: home equity investments (HEIs) and reverse mortgages. Both unlock your equity. Neither requires a monthly payment. But the mechanics, costs, eligibility requirements, and long-term implications are very different — and choosing the wrong one could cost you tens of thousands of dollars or limit your future options. This guide from Home Equity 101 breaks down everything you need to know to make the right call.

The Quick Answer

If you're 62 or older with very low income and you plan to stay in your home for the rest of your life, a reverse mortgage (HECM) deserves serious consideration. If you're under 62, a reverse mortgage isn't available to you — a home equity investment is the closest equivalent. And for homeowners 62+ who plan to move or sell within 10 years, who want to preserve equity for heirs, or who want the cleanest possible exit, a home equity investment often produces better outcomes than a reverse mortgage. The right answer depends on your age, plans, and financial situation. This guide walks through the decision in detail.

What Is a Reverse Mortgage?

A reverse mortgage — most commonly a Home Equity Conversion Mortgage, or HECM — is a government-insured loan program available to homeowners 62 and older. You borrow against your home equity, but instead of making monthly payments to a lender, the lender makes payments to you (or provides a lump sum or line of credit). The loan balance grows over time as interest and fees accrue.

The loan doesn't come due until you sell your home, move out permanently, or pass away. At that point, the home is typically sold and the proceeds pay off the loan balance. If the home sells for more than the balance, the remaining equity goes to you or your heirs. If the home sells for less than the balance, FHA insurance covers the difference — that's the non-recourse guarantee. You or your heirs will never owe more than the home is worth at time of sale.

Reverse Mortgage Costs

Reverse mortgages carry several layers of costs that accumulate over time:

• FHA Mortgage Insurance Premium (MIP): 2% of the home value upfront, then 0.5% per year on the outstanding balance. This is the cost of the non-recourse guarantee.
• Origination fee: Up to $6,000 for HECMs (regulated maximum). On a $500,000 home, that's the maximum; on lower-value homes, the fee scales down.
• Interest: Accrues on the outstanding balance. Rates can be fixed (lump-sum only) or variable (line of credit and monthly payment options). Current HECM variable rates range from roughly 7–9%.
• Closing costs: Title, appraisal, and closing costs similar to a purchase mortgage — typically $2,000–$5,000.

The critical point: interest compounds over time. A $150,000 reverse mortgage balance at 8% doubles to approximately $325,000 after 10 years. After 20 years, that same $150,000 has grown to roughly $700,000. The longer you hold the reverse mortgage, the less equity remains for you or your heirs.

Reverse Mortgage Ongoing Requirements

Owning a home with a reverse mortgage comes with ongoing obligations. You must:

• Continue paying property taxes (failure triggers default)
• Maintain homeowner's insurance
• Keep the home in good repair
• Live in the home as your primary residence (living away for 12+ consecutive months triggers repayment)

The FHA's mandatory counseling session (required before any HECM closes) exists specifically to ensure borrowers understand these ongoing obligations before committing.

What Is a Home Equity Investment?

A home equity investment (HEI) — also called a home equity agreement or equity sharing agreement — is not a loan. Companies like Hometap, Point, and Unlock give you a lump sum of cash today in exchange for a percentage of your home's future value. There's no interest, no monthly payment, and no income or employment verification required.

At the end of the investment term (typically 10 years, up to 30 years for some providers), you settle the agreement by selling the home, refinancing, or buying out the investment company's equity stake. The company receives their agreed percentage of your home's value at that time.

Home Equity Investment Costs

HEI costs are structured differently from reverse mortgages:

• Origination fee: Typically 3–5% of the investment amount (e.g., Hometap charges approximately 4.5% + closing costs)
• Equity share: The ongoing cost — the investment company owns a percentage of your home's future appreciation. This is the core cost, and it scales directly with how much your home appreciates.
• No interest: There is no interest rate. The cost is entirely based on appreciation sharing.

The math works differently from a loan. If your home stays flat or depreciates, the effective cost of an HEI is low. If your home appreciates significantly, the equity share you give up becomes larger in dollar terms. For a complete worked-example analysis, see our guide on how much a home equity investment costs.

Eligibility: Who Qualifies for Each?

Reverse Mortgage Eligibility

To qualify for a standard HECM reverse mortgage:

• Age 62 or older (at least one borrower on title; proprietary products from private lenders may allow age 55+)
• Own the home and occupy it as your primary residence
• Sufficient equity (typically 50%+ remaining equity is ideal, though the exact amount borrowed depends on your age and current interest rates — older borrowers can access more)
• No specific credit score minimum, but FHA reviews your payment history for property taxes, insurance, and other obligations; if history is poor, FHA may require a Life Expectancy Set-Aside (LESA) that reserves funds for taxes/insurance
• Financial assessment: lenders evaluate whether you can meet the ongoing obligations (taxes, insurance, maintenance)
• The home must meet FHA minimum property standards

Home Equity Investment Eligibility

HEI eligibility is simpler and more inclusive:

• No age requirement — available to any homeowner
• Minimum credit score: 500 (Unlock, Point) to 550 (Hometap)
• Equity requirement: 20% (Unlock), 25% (Hometap), or 30% (Point, Splitero)
• Owner-occupied primary residence
• Home value minimums: typically $100,000–$200,000+
• State availability: varies by provider (Hometap: 17 states + DC; Point: ~27 states + DC; Unlock: 13 states)
• No income verification required — this is a key advantage for retirees and self-employed homeowners

The critical practical difference: if you're under 62, the reverse mortgage is simply not available. If you're between 55 and 61 and want equity access without monthly payments, a home equity investment is your primary option.

Cost Comparison: What Do You Actually Pay?

Reverse Mortgage: Real Cost Example

Consider a 70-year-old homeowner with a $600,000 home, no mortgage, and good health. Based on current HECM parameters, they might qualify to borrow roughly $275,000–$325,000 at closing (exact amounts depend on age, interest rates, and the HECM's principal limit factor).

Upfront costs: ~$12,000–$16,000 (2% MIP on $600K = $12,000 + origination fee $6,000 + closing costs ~$3,000 = ~$21,000 rolled into the loan).

If they take $200,000 as a lump sum and the loan accrues at 8%, here's what the balance looks like over time:

• Year 5: ~$294,000
• Year 10: ~$432,000
• Year 15: ~$634,000

After 15 years, on a $600,000 home that's appreciated at 4% annually (now worth ~$1.08M), the remaining equity is approximately $446,000 — still substantial. On a home that's appreciated just 2% annually (worth ~$808,000), remaining equity is about $174,000. The reverse mortgage is expensive, but the non-recourse guarantee protects against the worst-case scenario.

Home Equity Investment: Real Cost Example

The same homeowner — 70 years old, $600,000 home — could access up to $150,000 through Hometap (investing up to 25% of the home's value). Hometap would take a percentage of the home's future appreciated value at settlement. The exact percentage depends on the specific agreement terms and equity share negotiated.

If the home appreciates to $800,000 in 10 years and Hometap holds a 15% equity share, they receive $120,000 at settlement — that's the cost (plus the 4.5% origination fee). If the home appreciates to $900,000, they receive $135,000. If the home declines to $550,000, they receive $82,500 — which may be less than the $150,000 you received, representing a very low effective cost to you.

The key difference from a reverse mortgage: the equity share doesn't compound. There's no interest meter running. Your cost is purely a function of appreciation, not time.

Impact on Homeownership and Heirs

Reverse Mortgage

With a reverse mortgage, you retain full ownership of your home — it's not transferred to the lender. You can still sell, and if you sell for more than the loan balance, you keep the difference. However, the compounding interest means the loan balance grows every year. For homeowners who live a long time in an appreciating market, the reverse mortgage may still leave meaningful equity. For homeowners who need extended care or face a declining market, the reverse mortgage may consume most of the home's equity.

For heirs: when you pass away, they have 6 months (typically extendable) to repay the loan or sell the home. They can also refinance the property if they want to keep it. The non-recourse protection means they'll never owe more than the home's fair market value at time of sale.

Home Equity Investment

With an HEI, you also retain full ownership. The investment company holds a lien on your property — similar in some ways to a second mortgage — but it doesn't accrue like debt. At term end (typically 10 years for Hometap and Unlock), you must settle: sell the home, refinance, or buy out the investment company's stake.

The 10-year term is a meaningful constraint that reverse mortgages don't have. If you take an HEI at age 70 and live to 83, you'll need to have settled by 80. That creates a known timeline — which some homeowners prefer — but it also means you can't simply hold the agreement indefinitely the way a reverse mortgage runs until end of life.

For heirs: at death, the HEI agreement becomes due. The estate settles it the same way you would — from sale proceeds. Any equity beyond the company's share passes to the estate.

Which Is Better for Retirement Income?

This is where the reverse mortgage has a structural advantage: the line of credit option. A HECM line of credit doesn't just sit there — it grows over time at the same rate as your interest rate. A $100,000 line of credit at 7% interest could grow to $197,000 in 10 years, giving you access to more funds than you started with. This growth feature is unique to reverse mortgages and not available in any HEI product.

For homeowners who want ongoing access to capital — taking draws as needed over years or decades — the reverse mortgage line of credit is a powerful financial planning tool. For homeowners who want a one-time lump sum to solve a specific financial need, the HEI is simpler and has no ongoing obligations beyond maintaining the property.

Provider Comparison: HEI Options

If you've determined that a home equity investment better fits your needs, here's how the main providers compare:

Hometap is generally the strongest starting point for most homeowners — broadest state availability, lowest credit score requirement among the largest providers, and the most transparent agreement process. For homeowners in states where Hometap doesn't operate, or who need the partial buyback flexibility only Unlock offers, there are good alternatives. For a full ranking, see our best home equity sharing companies guide.

When to Choose a Reverse Mortgage

A reverse mortgage is likely the better choice when:

• You're 62+ and plan to live in your home for the rest of your life. The reverse mortgage has no forced term end — it runs as long as you occupy the home. An HEI's 10-year term could create pressure to move or refinance at an inconvenient time.
• You want the line of credit growth feature. This is genuinely unique to the HECM and can be a powerful retirement income planning tool.
• Your income is zero or very limited. HEI providers have no income requirement, but reverse mortgages are explicitly designed for income-constrained retirees. If you need ongoing draws rather than a lump sum, the reverse mortgage structure may fit better.
• Your home is very high value. For homes above Hometap's $600,000 investment cap, a reverse mortgage may allow access to more equity in one transaction (though jumbo/proprietary reverse mortgage products exist for very high-value homes).
• You need to eliminate mortgage payments. If you still have a mortgage, a reverse mortgage can pay off that balance — eliminating the monthly payment permanently — and provide additional funds from remaining equity. HEIs can also pay off mortgages, but the remaining term and ongoing mortgage obligation structure differently.

When to Choose a Home Equity Investment

A home equity investment is likely the better choice when:

• You're under 62. The reverse mortgage simply isn't available. An HEI is the closest equivalent product for payment-averse homeowners who don't qualify by age.
• You plan to sell within 10 years. If you expect to move within the decade, an HEI's term aligns naturally with your timeline. At sale, you settle the agreement from proceeds — a clean exit with no compounding interest eating into your equity in the meantime.
• You want to preserve equity for heirs. Because HEI costs don't compound, a 10-year HEI settled when your home sells will typically cost less in absolute dollar terms than a 10-year reverse mortgage — especially in a rising rate environment.
• Your home appreciates slowly or you're in a stable market. In a flat or modest-appreciation market, the equity share you give up in an HEI may be smaller in dollar terms than the compounding interest on a reverse mortgage over the same period.
• You have reasonably good credit and only need one-time access. HEI qualification is straightforward — credit score, equity, state — with a soft pull that doesn't affect your credit. The process is typically faster (3–5 weeks for Hometap) than a reverse mortgage closing.
• You want a simpler agreement. Reverse mortgages involve ongoing compliance obligations (taxes, insurance, occupancy verification) with real default consequences. HEI agreements are also ongoing obligations, but the structure is simpler: maintain the property, don't add senior debt without approval, settle at term end.

The Age Gap: Homeowners 55–61

This is the underserved group in the equity access market. You're not young — retirement is close or already here — but you don't yet qualify for the reverse mortgage designed for your situation. Some proprietary (non-FHA) reverse mortgage products exist with lower age requirements (as low as 55), but these are less regulated, carry different costs, and aren't available in all states.

For homeowners 55–61 who want equity access without monthly payments and can't or won't use traditional lending, home equity investments are the primary option. The 10-year term works well for this group: access cash now, settle the agreement around age 65–71 when you might move to a retirement community, downsize, or have other liquidity events.

For more on accessing equity without a loan, see our guide on home equity agreements vs HELOCs and our HEI vs HELOC comparison.

Common Questions

Can I have both a reverse mortgage and a home equity investment?

No. Both products require being in a primary lien position or getting approval to subordinate other debt. An HEI provider will not invest in a home that already carries a reverse mortgage, and you cannot obtain a reverse mortgage on a property with an existing HEI lien without first settling the HEI.

What happens if I need to move into assisted living?

This is a critical scenario for older homeowners. A reverse mortgage becomes due when you vacate the home for 12 consecutive months — including a move to assisted living or memory care. The home would typically be sold to repay the loan. With an HEI, there's no occupancy requirement — the agreement settles at term end, sale, or buyout regardless of where you live. If an assisted living move is possible within your planning horizon, factor this into your decision.

Does a reverse mortgage or HEI affect Social Security or Medicare?

Generally, neither affects Social Security retirement benefits or Medicare. Reverse mortgage proceeds are considered loan advances (not income) and typically don't count as income for these programs. HEI proceeds are similarly structured as an investment advance. However, if you're on Medicaid or Supplemental Security Income (SSI), which have strict asset limits, the lump sum from either product could temporarily affect your eligibility if not spent down within the same calendar month. Consult a benefits counselor before proceeding.

My home is in a trust. Can I still use these products?

Yes, in most cases. Both reverse mortgages and HEI providers are generally able to work with revocable living trusts, as long as the trust documents are reviewed and meet their requirements. This is a common situation among older homeowners who have estate-planned their property, and most HEI providers handle it routinely. Irrevocable trusts are more complicated — discuss with the provider directly.

Which is better for a homeowner who wants to help a child with a down payment?

Either can fund that goal, but an HEI is cleaner for a one-time lump sum need. You get the cash, gift it to your child, and the HEI sits quietly until you sell or the term ends. A reverse mortgage works too, but the ongoing compliance and compounding balance are more complexity than a one-time funding need requires. For most homeowners in this scenario, an HEI is the simpler, lower-complexity choice.

The Bottom Line

Both home equity investments and reverse mortgages solve the same core problem: unlocking equity without monthly payments. But they're built for different situations.

The reverse mortgage is purpose-built for homeowners who want to stay in their home indefinitely, particularly those who want ongoing access to funds through the line of credit. The cost structure is front-loaded with MIP and origination fees, then continues to grow through compounding interest — manageable if you live in the home long-term, but expensive if you sell or move within a decade.

The home equity investment is cleaner for homeowners who have a definable time horizon (selling within 10 years, funding a specific need, expecting to move or downsize). The equity share cost is predictable and doesn't compound. No age requirement means it's available to homeowners under 62 who have no reverse mortgage option at all. And the process is faster and simpler to navigate.

If you're 62+ and planning to stay indefinitely, talk to a HUD-approved reverse mortgage counselor before deciding — the HECM line of credit's growth feature is genuinely valuable in the right situation. If you're under 62, or 62+ with a plan to sell or move within 10 years, start with a home equity investment. Hometap offers a free estimate with a soft credit pull and funding in roughly 3 weeks.

For more comparison reading: our HEI vs HELOC guide, our full Hometap review, and our ranking of the best home equity sharing companies.