Texas homeowners 62 and older often face the same question: “Should I get a reverse mortgage or a home equity loan?” Both access your home equity. Both keep you in your home. But they work very differently — and the right choice depends on one factor more than any other: whether you can afford a monthly payment.
The Fundamental Difference
A home equity loan (or HELOC) gives you access to equity now and requires monthly payments — just like any other loan. You borrow, you pay back, on a schedule.
A reverse mortgage gives you access to equity now and requires no monthly payment at all. Instead, the loan balance grows over time as interest accrues, and the entire loan is repaid when you sell, move out, or pass away.
That single distinction — monthly payment vs. no payment — drives almost every other difference between the two products.
Side-by-Side Comparison
| Feature | Reverse Mortgage (HECM) | Home Equity Loan / HELOC |
|---|---|---|
| Monthly payments required? | No — optional only | Yes — required |
| Minimum age | 62+ | None |
| Income / credit requirement | Financial assessment only — not income-based approval | Income and credit qualification required |
| Loan balance over time | Grows (interest accrues) | Decreases with payments |
| Upfront costs | Higher (2% upfront MIP + closing costs) | Lower (varies, often minimal) |
| FHA-insured? | Yes (HECM program) | No |
| Texas counseling required? | Yes — mandatory HUD session | No |
| Impact on heirs | Loan due at death/move; non-recourse protection | Loan remains on estate; heirs must manage |
| Texas 80% LTV cap? | No — HECM uses separate principal limit factors | Yes — total liens cannot exceed 80% of value |
| Best for | Eliminating payments, long-term income supplementation | Short-term needs, borrowers with income to service debt |
Texas-Specific Rules for Home Equity Loans
Texas has some of the most protective home equity laws in the country, rooted in the state constitution. Before choosing a home equity loan, you need to understand these rules:
- 80% LTV cap: The total of all liens against your home cannot exceed 80% of your home’s appraised value. This is a hard constitutional limit.
- One equity loan at a time: Texas allows only one home equity loan or HELOC per property at any given time.
- 12-day waiting period: There must be at least 12 days between the date you apply and the date of closing.
- Closing location: Must close at a title company, lender’s office, or attorney’s office — not at your home.
- No cash-out during first year: You cannot take equity out of a home you’ve owned for less than 12 months.
These same constitutional protections extend to reverse mortgages as well, though the HECM program operates under its own principal limit calculations rather than the 80% LTV rule.
Cost Comparison: What You’ll Actually Pay
A home equity loan or HELOC typically has much lower upfront costs — sometimes just a few hundred dollars, or none at all for a promotional HELOC. That looks attractive on day one.
A HECM reverse mortgage carries an upfront mortgage insurance premium of 2% of the home’s appraised value, plus standard closing costs. On a $500,000 home, that’s $10,000 in MIP alone.
However, here’s the calculation that changes the picture: if a reverse mortgage eliminates a $1,400/month mortgage payment, the break-even on those closing costs is approximately 7–8 months. Over a 10–15 year retirement horizon, the cash flow impact dwarfs the upfront cost differential.
When a Home Equity Loan or HELOC Makes More Sense
- You need a specific sum for a one-time project and have reliable income to cover payments
- You plan to sell and move within 2–4 years — the reverse mortgage’s upfront costs won’t be recouped
- You want to preserve maximum equity for your heirs and are comfortable with monthly payments
- You are under 62 and don’t yet qualify for a HECM
- You want a revolving line of credit with maximum flexibility and minimal cost
When a Reverse Mortgage Makes More Sense
- You want to eliminate your existing mortgage payment permanently
- Your income is fixed and you cannot reliably service a new monthly payment
- You plan to stay in your home for 5+ years
- You want a growing line of credit as a long-term retirement safety net
- You don’t qualify for a home equity loan due to income or credit limitations
- You want to buy a new home without taking on a monthly payment (HECM for Purchase)
Frequently Asked Questions
What is the main difference between a reverse mortgage and a home equity loan?
Repayment structure. A home equity loan requires monthly payments from day one. A reverse mortgage requires no monthly payments — the balance grows over time and is repaid when you sell, move out, or pass away. Both use your home as collateral.
Which has lower costs — a reverse mortgage or a home equity loan in Texas?
Home equity loans and HELOCs have lower upfront costs. The HECM requires a 2% upfront MIP. However, the reverse mortgage’s elimination of monthly payments creates far greater long-term cash flow benefit — the break-even on higher costs is typically less than a year of eliminated payments.
Can you get a home equity loan if you have a reverse mortgage?
Generally no. A reverse mortgage sits in first lien position and most lenders won’t issue a second lien behind it. If you need additional access after establishing a HECM, speak with your servicer about options within the existing loan structure.
What are Texas’s special rules for home equity loans?
Under Article XVI, Section 50 of the Texas Constitution: total liens cannot exceed 80% of home value; only one equity loan at a time; a 12-day waiting period between application and closing; and closing must occur at a title company, lender’s office, or attorney’s office.
Is a HELOC or reverse mortgage better for a retiree in Texas?
A HELOC is better if you have reliable income to cover payments, need short-term access, and want to preserve equity. A reverse mortgage is better if you’re on a fixed income, want payments eliminated entirely, and need a long-term solution. Cash flow sustainability is the deciding factor.
Not Sure Which One Is Right for You?
Give me your numbers — home value, existing mortgage balance, monthly income — and I’ll run both scenarios side by side. No obligation. Just clarity.
Senior Vice President of Mortgage Solutions at Homewood Mortgage LLC (NMLS #294974).
27-year mortgage industry veteran serving North Texas homeowners. I’ll show you both options honestly.
📞 945-300-4644 | wayne-wallace.com
This content is for informational purposes only and does not constitute financial, legal, or tax advice. Loan products and regulations are subject to change. All borrowers should consult with a HUD-approved housing counselor and their own financial and legal advisors before proceeding. Wayne Wallace is a licensed Mortgage Loan Originator (NMLS #745186). Homewood Mortgage LLC, NMLS #294974. Equal Housing Lender.