HOME EQUITY · VIDEO + GUIDE
Reverse mortgage vs. HEI:
same home. Different tradeoffs.
Your home has equity. Your budget needs room. Compare what you receive today, what you keep paying and what you may owe later.
THE SHORT ANSWER
A different way to access equity. A different way to pay for it.
A reverse mortgage is a loan whose balance grows as interest and costs accrue. A home equity investment, or HEI, provides funds in exchange for a future contractual settlement tied to your home’s value. Both can avoid a new monthly payment, but neither makes your equity free to use.
An HEI may be worth exploring if you want to keep your current mortgage and avoid adding a monthly payment. Your existing mortgage payment continues, and the future HEI settlement can be substantial. The right comparison includes both today’s budget and your eventual exit.
Reverse mortgage vs. home equity investment: at a glance
This guide compares an FHA-insured Home Equity Conversion Mortgage (HECM)—the most common reverse mortgage—with the HEI option I review. Private reverse mortgages and other HEI providers can have different rules.
On a smaller screen, swipe the table to compare both options.
| What matters | HECM reverse mortgage | HEI described here |
|---|---|---|
| Structure | A loan with a balance that grows as interest and costs accrue. | An investment agreement with a future settlement tied to the home’s total value, subject to its terms and cap. |
| New monthly payment | No scheduled monthly principal-and-interest payment while you meet the loan obligations. | No monthly HEI payment. Any existing mortgage payment continues. |
| Existing mortgage | Must be paid off at closing, using HECM proceeds or other funds. | May remain in place if equity, liens and other requirements allow it. |
| Eligibility focus | Borrowers age 62+, a principal residence, sufficient equity, counseling and a financial assessment. | Property, equity, credit and other program requirements. The HEI described here has no income qualification. |
| Credit score | FHA sets no minimum decision credit score for a HECM. Credit history still matters. | Scores as low as 500 may be considered. Lower score bands have tighter combined equity limits. |
| Future obligation | Repay the loan balance when due, typically after sale, a permanent move or death, with applicable spouse protections. | Settle by the agreement’s deadline or an earlier trigger, such as a sale. Model the amount before committing. |
| Costs to compare | Closing costs, mortgage insurance, interest and any servicing charges. | Upfront fees, net cash received, the future-value share, the cap and settlement costs. |
HECM references: CFPB eligibility, costs and HUD credit policy, p. 566. HEI details reflect the program information reviewed with Luke as of October 1, 2026.
How does a reverse mortgage work?
A HECM lets eligible homeowners age 62 or older access equity in their principal residence. You keep title to the home. You do not make scheduled monthly principal-and-interest payments, but you must meet the loan’s ongoing conditions.
If you already have a mortgage, it must be paid off when the HECM closes, using loan proceeds or other funds. This can eliminate that mortgage’s monthly principal-and-interest payment. It also uses some of the money that might otherwise be available to you.
CFPB: What is a reverse mortgage? · Eligibility and required counseling
What can make homeowners hesitate?
Upfront closing charges, mortgage insurance and ongoing interest affect the total cost. When costs are added to the loan, the balance grows, leaving less equity for a later sale or inheritance. Ask for the projected balance at several future dates, along with the actual cash available after payoffs and charges.
You still pay property taxes and insurance and maintain the home. A sale, permanent move or death can make the loan due, subject to applicable protections for an eligible spouse. Discuss a possible move, extended care needs and family plans before choosing.
CFPB: Reverse mortgage costs · Ongoing obligations · Options for heirs and spouse considerations
How is an HEI different?
The HEI option I review offers funds today without income qualification or a monthly HEI payment. It may fit a homeowner whose equity is strong but whose income documentation or monthly budget makes another loan less appealing.
It may also let you retain an existing mortgage, including its rate and remaining term, if the property’s equity and liens permit. That is especially relevant if replacing your mortgage would disrupt financing you want to keep. Keeping the mortgage means keeping its payment. Taxes, insurance and upkeep continue too.
The cost is concentrated in a future settlement. In this structure, the agreement uses a share of the home’s total value at settlement—not just its appreciation—subject to a contractual cap and other terms. You can owe more than you received even if the home does not appreciate.
Certain rental properties may also be reviewed, with different requirements from a primary home. Available proceeds depend on the property, existing debt, credit and the specific proposal. Fees and required payoffs reduce the cash you actually receive.
Credit requirements: what do 500 and 580 really mean?
The HEI program I review can consider credit scores as low as 500. A score of 580 or higher opens the highest standard combined limit in the program guidelines, before applicable property and lien adjustments.
- 500–539
- Up to 60% standard combined limit
- 540–579
- Up to 65% standard combined limit
- 580+
- Up to 75% standard combined limit
“Combined” includes your existing secured debt plus the gross HEI amount, divided by property value. It does not mean you can receive 75% of your home’s value as new cash. Non-owner occupancy and lien position can reduce these limits; other requirements and investment-size limits apply.
Does a reverse mortgage require a better score?
Not under FHA’s HECM score rule. FHA does not set a minimum decision credit score for a HECM. Credit history and the financial assessment still matter: the review considers your ability and willingness to meet ongoing obligations. A life-expectancy set-aside may be required for property charges, reducing available proceeds.
That makes “HEI accepts 500” a useful eligibility fact, but not evidence that it has a lower credit-score requirement than a HECM. Compare the complete requirements for your situation.
HUD Handbook 4000.1: HECM credit score policy, printed p. 566 (PDF p. 591) · HUD: Financial assessment and set-asides
THE EXAMPLE FROM THE VIDEO
A $500,000 home. What could the HEI settlement look like?
Start with a home worth $500,000 and a hypothetical $100,000 gross investment. Assume sufficient equity and acceptable liens, a 40% share of future home value and a 4.99% origination fee. These are illustration assumptions, not an offer or a universal pricing formula.
$100,000Assumed fee
− $4,990After that fee only
$95,010
Other costs, required payoffs or an applicable holdback can reduce the cash further. Now assume the home is still worth $500,000 when you settle. The 40% value share would be $200,000.
For this illustration, settlement is the lower of that value share and a cap calculated on the $100,000 gross investment at a 17.99% nominal annual rate, compounded monthly.
IF SETTLED AFTER 1 YEAR
About $119,550The illustrated cap is lower than the $200,000 value share.
IF SETTLED AFTER 5 YEARS
$200,000The value share is lower than the approximately $244,202 cap.
Same home value. Different holding period. Different settlement. No appreciation does not mean no cost. A lower future home value also does not guarantee a settlement below the original investment.
Illustrative cap = $100,000 × (1 + 0.1799 ÷ 12)months. Rounded to the nearest dollar. The cap rate is not an APR or a reverse-mortgage rate. One and five years are possible exit dates, not required contract terms. These figures exclude other costs and contractual adjustments; existing mortgage debt is separate. Actual terms, valuation and settlement calculations require review.
Which option fits your priorities?
An HEI may deserve a closer look when…
- You want to access equity while preserving an existing mortgage.
- A new monthly payment would strain the budget.
- Income qualification is a hurdle, but there is substantial eligible equity.
- You understand the future settlement and have a realistic way to fund it.
A HECM may deserve a closer look when…
You meet its age and principal-residence requirements, expect to remain in the home and want to eliminate an existing mortgage’s principal-and-interest payment. Required HUD-approved counseling is an opportunity to work through costs, alternatives and household protections.
Ask about the exit before choosing the entry.
For an HEI, ask for the maturity date, earlier settlement triggers, valuation rules, cap and any adjustments. Model flat, rising and falling home values at the dates you might exit. With a HECM, review projected balances and the events that make repayment due.
For either option, identify the funds you would use to settle. A future refinance is not guaranteed. If other funds are unavailable, selling may be necessary. Both arrangements secure obligations against the property; failing to meet those obligations can put the home at risk.
Where does a HELOC fit?
If monthly payments are manageable, a home equity line of credit is worth comparing too. It does not exchange a share of future home value for the funds. Instead, you repay debt under the loan’s terms.
The HELOC program I review requires a full initial draw and principal-and-interest payments from the start. It is not an unused standby line at origination. Additional draws have their own terms. Compare the payment, fees and payoff balance with the HEI’s potential future settlement.
Common questions
Is a home equity investment the same as a reverse mortgage?
No. A reverse mortgage is a loan with an accumulating balance. The HEI described here is a contractual investment arrangement: you receive funds now and later settle an agreed share of the home’s total value, subject to the contract and its cap. Both create obligations secured by the property.
Can I get an HEI with a 500 or 580 credit score?
The program I review can consider scores as low as 500. Its highest standard combined limit begins at 580, before property and lien adjustments. A score does not establish approval or the amount available; existing debt, property value and the remaining requirements still matter.
Does a reverse mortgage require a minimum credit score?
FHA does not set a minimum decision credit score for a HECM. Lenders still evaluate credit history and the financial ability to meet ongoing obligations. This HECM rule does not describe every proprietary reverse mortgage.
Can I keep my current mortgage with an HEI?
Potentially, if the equity and lien requirements allow it. Your current mortgage payment continues, and some proposals require a lien payoff. A HECM instead requires the existing mortgage to be paid off at closing.
Do I only pay an HEI company if my home appreciates?
No. In the HEI structure discussed here, the contractual share applies to the total value at settlement, not only the increase in value. You can owe more than the original investment even if the home’s value stays flat or declines.
Can I settle the HEI early?
The program described allows early settlement without a prepayment penalty. The contractual repurchase amount and applicable costs still apply. Review the valuation process, settlement calculation and timing in the written agreement; refinancing later is not guaranteed.
Will asking Luke about my options affect my credit?
The first website inquiry does not pull credit or submit a provider application. If you later pursue the HEI, signing its application documents triggers a hard credit inquiry, which can affect your score. That is a separate step.
YOUR HOME. YOUR NEXT STEP.
You don’t have to choose before we talk.
Tell me what you want your equity to do, what you owe and how you feel about another monthly payment. We can discuss whether an HEI, a HELOC or another path is worth exploring.
Discuss my equity optionsLearn more about the programs →
Requests starting at $50,000 for eligible properties in California, Florida, Tennessee and Washington. No documents or credit pull for the first website inquiry. Later application steps are separate.
Luke Roasst · NMLS# 2311093
Edge Home Finance, LLC · NMLS# 891464
Equal Housing Lender.
Educational comparison reviewed October 1, 2026. HECM information is based on the linked HUD and CFPB sources; HEI and HELOC descriptions refer to the specific programs reviewed with Luke, not every product in the market. This is not a quote, loan approval, commitment to lend or offer to enter into an agreement. Eligibility, availability and actual terms require review and may change.