HECM vs. HELOC: What are the advantages?

DDA Mortgage • January 18, 2023




Adrian Prieto: When it comes to leveraging the value of a home, a home equity line of credit (HELOC) is probably the most well-known option. However, it’s not necessarily the most appropriate option for older homeowners, ages 62+. 


Unlike HELOCs, reverse mortgages and jumbo reverse mortgages are designed specifically to help seniors manage their cash flow. They also offer senior homeowners more flexibility – most notably, through optional monthly mortgage payments1. And with a HECM, seniors cannot be locked into any possible payment spikes. That’s why it’s a much better product for retirees. Unfortunately, many who could benefit from it have never considered it. 


For example, many people get a HELOC while still working—but the problem arises ten years later when they’re living on retirement cash flow that’s about 75-80% of what it used to be. And when their HELOC payment suddenly spikes up ten years after they’ve retired, it may create a serious cash flow problem. One that often results in customers refinancing from a HELOC to a reverse mortgage, once they realize it’s the better choice in the long run

.

A HECM is insured by the Federal Housing Administration (FHA)2 and cannot be frozen or reduced at any time. But perhaps the biggest benefit of a HECM is that, unlike a HELOC, there are no monthly mortgage payments required1. The borrower simply needs to pay taxes, insurance and keep up to date on home maintenance. And with the average monthly payment on a 30-year fixed mortgage now hovering around $2,064 – this presents a major savings opportunity every month.


The HECM program also offers more flexibility as compared to a HELOC. While HELOCs require money to be disbursed as a revolving credit as needed during a designated draw period, HECM offers several options for receiving funds. With a HECM, money can be disbursed either via a one-time lump sum, monthly payment, line of credit – or a combination of these methods. Plus, any unused portion of a line of credit can grow over the life of the loan, which is not the case with a HELOC.


Another advantage of HECMs over HELOCs is that they are less risky in terms of repayment. With a HECM, there is no deadline for paying back the loan. The loan does not become due until the final borrower no longer lives in the home, but they must continue to meet loan terms and use the home as their primary residence. And since a HECM is a non-recourse loan, the borrower and their heirs are not required to pay back more than the value of the home. 


With a HELOC, the loan typically becomes due after ten years. However, making interest-only payments or paying the minimum required each month will not pay off the line of credit by the end of the 10-year period. In these cases, the bank may require a balloon payment – a larger, lump-sum payment that covers any remaining balance. This requires the borrower to potentially come up with thousands of dollars at once to eliminate their debt.


HW: How are HECMs especially beneficial for homeowners age 62+?

AP: For homeowners ages 62 and older, HECMs offer a variety of benefits over HELOCs. In terms of loan eligibility, a HELOC requires borrowers to qualify based on credit score and income. For those homeowners who are retired or adjusting to a limited or fixed income, this is not ideal. With a HECM, credit score and income are not the sole determining factors. Instead, the borrower must simply be a homeowner at least age 62, use the home as their primary residence and have sufficient equity available in the home. 

Another advantage of HECMs over HELOCs is that they’re FHA-insured and offer unique borrower safeguards. Along with the non-recourse protection mentioned earlier, HECMs also require borrowers to attend independent HUD-approved counseling as part of the process. This counseling session provides potential borrowers with the education and resources to decide whether the HECM is the right option, explore alternative financial solutions and provide support throughout the entire application process.

Senior homeowners also appreciate the HECM because there are not any annual fees to keep the loan open. This is not the case with a HELOC.




Have A Question?

Use the form below and we will give your our expert answers!

Reverse Mortgage Ask A Question

Start Your Loan with DDA today
Your local Mortgage Broker

Mortgage Broker Largo
See our Reviews

Looking for more details? Listen to our extended podcast! 

Check out our other helpful videos to learn more about credit and residential mortgages.

Is Refinancing Right for You? Unlocking Cash & Financial Freedom

By Didier Malagies • February 3, 2026
Is Refinancing Right for You? Unlocking Cash & Financial Freedom Feeling squeezed? Juggling multiple debts with varying interest rates? Dreaming of that kitchen remodel you've been putting off? Or maybe you just need a little extra breathing room in your monthly budget? You're not alone. Many homeowners find themselves in situations where they need access to cash, and for a significant portion of them, the answer is refinancing their mortgage. In fact, last year, a whopping 40% of all mortgage activity was refinances! But what exactly is driving this trend, and could refinancing be the right move for you ? Refinancing to Unlock Cash: Home Improvements, Debt Consolidation, and More One of the primary drivers behind the refinance boom is the desire to tap into home equity. Your home is likely your largest asset, and as you pay down your mortgage and your property value increases, you build equity. A cash-out refinance allows you to borrow against that equity, receiving the difference in cash at closing. Home Renovations and Upgrades Imagine finally getting that dream kitchen! Or adding a much-needed bathroom. Home improvements not only enhance your living space, but they can also significantly increase your home's value. Instead of relying on high-interest credit cards or personal loans, a cash-out refinance provides a more affordable way to finance these projects. Debt Consolidation: Streamline Your Finances Are you overwhelmed by multiple credit card bills, student loans, or other high-interest debts? A cash-out refinance can be a powerful tool for debt consolidation. By using the cash from your refinance to pay off these debts, you can simplify your finances, potentially lower your overall interest rate, and reduce your monthly payments. This can free up cash flow and make it easier to manage your finances. Unexpected Expenses and Opportunities Life throws curveballs. Unexpected medical bills, job loss, or even a fantastic investment opportunity can create a need for immediate cash. A cash-out refinance can provide a financial safety net, allowing you to address these situations without resorting to high-interest options. Beyond Lower Rates: Other Reasons to Refinance While a lower interest rate is often the primary motivation for refinancing, it's important to recognize that it's not the only reason homeowners choose to refinance. Many factors contribute to the decision, and sometimes, a lower rate isn't even the main goal. Switching Loan Types: From ARM to Fixed-Rate Adjustable-rate mortgages (ARMs) can be attractive with their initially lower interest rates. However, as the name suggests, the rate can adjust over time, potentially leading to higher monthly payments. Refinancing from an ARM to a fixed-rate mortgage provides peace of mind by locking in a stable interest rate for the life of the loan. This can be especially appealing in a rising interest rate environment. Shortening Your Loan Term Refinancing to a shorter loan term, such as from a 30-year mortgage to a 15-year mortgage, can save you a significant amount of money in interest over the life of the loan. While your monthly payments will likely be higher, you'll pay off your mortgage much faster and build equity more quickly. This is a great option for homeowners who are financially secure and want to accelerate their path to homeownership. Removing Private Mortgage Insurance (PMI) If you initially put down less than 20% when you purchased your home, you're likely paying private mortgage insurance (PMI). PMI protects the lender in case you default on your loan. However, once you've built up enough equity in your home (typically 20%), you can request to have PMI removed. Refinancing can be a way to get a new appraisal and demonstrate that you've reached the required equity threshold, allowing you to eliminate this extra monthly expense. You can reach out to us through our contact page to learn more about your specific scenario. The Rise of Cash-Out Refinancing: A 2023 Trend As we mentioned earlier, a substantial portion of 2023 refinance volume was cash-out refinancing. This indicates a shift in homeowner priorities. While securing lower interest rates remains important, the need for accessing equity for various financial needs is becoming increasingly prevalent. Economic Factors Influencing Refinance Decisions Several economic factors contribute to the popularity of cash-out refinancing. Rising home values have created more equity for homeowners to tap into. Additionally, inflation and rising costs of living are putting pressure on household budgets, making debt consolidation and access to cash more appealing. Economic uncertainly may lead homeowners to consolidate their debts and protect against future economic shock. Weighing the Pros and Cons: Is Cash-Out Refinancing Right for You? While cash-out refinancing can be a valuable tool, it's crucial to carefully consider the pros and cons before making a decision. On the positive side, it can provide access to cash for important needs, consolidate debt, and potentially lower your overall interest rate. However, it also means taking on a larger mortgage, potentially extending your loan term, and paying closing costs. A recent [Housing Wire article]( "") discussed the importance of working with an expert to determine what option is best for each homeowner. Important Considerations Before You Refinance Assess Your Financial Situation: Carefully evaluate your current debt obligations, income, and expenses. Compare Interest Rates and Fees: Shop around for the best refinance rates and terms. Don't just focus on the interest rate; consider all associated fees. Calculate the Break-Even Point: Determine how long it will take to recoup the closing costs associated with refinancing. Understand the Tax Implications: Consult with a tax advisor to understand any potential tax implications of refinancing. Does Refinancing Make Sense to Consolidate Debt? Let's Talk! Refinancing can be a powerful tool for achieving your financial goals, whether it's consolidating debt, funding home improvements, or simply gaining more financial flexibility. But it's not a one-size-fits-all solution. That's why it's essential to work with a trusted mortgage professional who can assess your individual needs and help you determine if refinancing is the right choice for you. At DDA Mortgage, we're committed to providing personalized guidance and helping you navigate the complexities of the mortgage process. If you're considering refinancing, we encourage you to contact us today for a free consultation. Let us help you explore your options and find the best solution for your unique situation. Check out our Refinancing page to learn more, and then reach out to one of our team members! Disclaimer: This article is for informational purposes only and does not constitute financial advice. Consult with a qualified financial advisor before making any financial decisions. Interest rates and loan terms are subject to change without notice.

gen x investors are confident, but they often lack a formal retirement plans says reverse mortgage

By Didier Malagies • February 2, 2026
gen x investors are confident, but they often lacka formal retirement plans says reverse mortgage

40% of all mortgages last year were refinances

By Didier Malagies • February 2, 2026
a large share of the refinances in 2025 were indeed driven by homeowners taking cash out of their home equity to consolidate debt or tap housing wealth, not just refinancing to get a lower interest rate. The data available on refinance activity in early and mid-2025 show this clearly: 🏠 1. Cash-Out (Equity Extraction) Was a Big Part of Refinances When mortgage rates stayed relatively high (often above ~6.5%), fewer borrowers could refinance purely to lower their rate or monthly payment. In that environment, lenders and borrowers often shifted toward cash-out refinances — where you borrow more than your existing mortgage and receive the difference in cash. According to Federal Housing Finance Agency (FHFA) data: In early 2025, cash-out refinances made up a majority of refinance activity — rising from about 56 % of refinances to roughly 64 % in the first quarter of the year. That means most refinance borrowers were actually pulling equity out. 💳 2. Cash-Out Often Leads to Debt Consolidation Borrowers commonly use the cash from a cash-out refinance to pay down higher-interest personal debt, like credit cards or auto loans. A Consumer Financial Protection Bureau report (covering broader refinance behavior) found that the most frequent stated reason for cash-out refinancing was to “pay off other bills or debts.” This happens because: Mortgage interest rates on large balances may still be lower than credit card or personal loan interest rates. Consolidating high-interest debt into a mortgage can simplify payments and reduce total interest costs — as long as the homeowner plans correctly and understands the risks of converting unsecured debt into home-secured debt. 📉 3. Rate-Reduction Refinancing Was Less Dominant Compared with past refinance cycles (especially when rates plunged), rate-and-term refinances — where the main goal is lowering your interest rate and monthly payment — were less dominant in 2025. The FHFA reports suggest that because average mortgage rates stayed relatively elevated during the first part of 2025, cash-out refinances became a bigger share — not just refinance for rate savings. 📊 What This Means in Simple Terms Not all refinance activity is about getting a lower rate. A substantial chunk of 2025 refinance volume was cash-out refinancing. Many homeowners took some of that cash to consolidate other debt, meaning part of the high refinance share reflects debt consolidation activity, not solely traditional mortgage refinancing for rate/term improvement. So yes — while refinancing to lower the rate still happened, a lot of the refinance volume in 2025 was linked to cash-out and debt consolidation purposes. This helps explain why refinance activity remained relatively strong even when interest rates weren’t plummeting. Let me know if you want some numbers or examples of how much debt consolidation affected total refinancing! 3 messages remaining. Start a free Business trial to keep the conversation going Try Business free tune in and learn https://www.ddamortgage.com/blog didier malagies nmls#212566 dda mortgage nmls#324329
Show More