Reverse Mortgage vs. Cash-Out Refinance
Older homeowners weighing how to access equity sometimes compare a reverse mortgage, which requires no monthly payments, against a cash-out refinance, which replaces the mortgage but requires ongoing payments.
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Reverse Mortgage
A loan generally available to homeowners above a certain age, converting equity into cash without required monthly payments, repaid upon sale or when the borrower no longer lives there.
- No required monthly mortgage payments while living in the home
- Can provide meaningful supplemental income for retirees on a fixed budget
- Higher upfront costs than a typical cash-out refinance
- Loan balance grows over time as unpaid interest accrues
- Only available to homeowners meeting a minimum age requirement
Cash-Out Refinance
The existing mortgage is replaced with a new, larger loan, providing cash upfront but requiring regular monthly payments going forward.
- Available to any qualifying homeowner regardless of age
- Lower typical closing costs than a reverse mortgage
- Loan balance doesn't grow from unpaid accruing interest, since payments are required
- Requires sufficient income to qualify for and support ongoing monthly payments
- Resets the mortgage term and touches the rate on the full loan balance
Which one makes sense for you?
A reverse mortgage can suit eligible older homeowners who want cash without adding a monthly payment obligation, at the cost of higher upfront fees and a growing loan balance over time. A cash-out refinance costs less upfront and doesn't grow the balance through accruing interest, but requires the income to support regular payments.
Key cost factors.
- Whether you meet the age eligibility requirement for a reverse mortgage
- Your monthly income and ability to support ongoing loan payments
- How much you prioritize preserving home equity over time
- Your long-term plans for staying in or eventually selling the home
Before you decide.
- Do I meet the eligibility requirements for a reverse mortgage?
- Can I comfortably support the monthly payment a cash-out refinance would require?
- How would each option affect the equity ultimately remaining in my home?
Frequently asked questions.
Can a reverse mortgage be paid off early if I change my mind?
Yes — reverse mortgages can typically be paid off at any time, often without a prepayment penalty, though it's worth confirming the specific terms with your lender.
All figures on this page are illustrative examples for general education, not quotes, appraisals, or guarantees of actual pricing. Actual costs vary by provider, location, project scope, and market conditions — always get a specific quote before making a purchasing decision.
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