I have heard from several homeowners lately that want to tap into their equity. Refinancing into a standard forward mortgage is an option for some, but many don’t want to mess with their existing mortgage, deal with a Home Equity Line of Credit with another payment, or they want to eliminate their monthly payments entirely. There are options…
Two Ways to Access Equity But Very Different Long Term Outcomes
Many homeowners today are “house rich but cash constrained.” They may have significant equity, but:
- They don’t qualify for a traditional refinance or HELOC
- They don’t want, or can’t afford, another monthly payment
- They’re retired or living on fixed income
- Their existing mortgage rate is too attractive to replace
That’s where Reverse Mortgages and Home Equity Investments (HEIs) often enter our conversations. While both allow homeowners to tap equity without required monthly payments, the structure, risk, and long term cost of each are very different.
Let’s break it down.
What Is a Reverse Mortgage?
A reverse mortgage, their are several Proprietary Reverse programs with flexible guidelines that might be better in many applications, but most commonly procured is the federally insured HECM (Home Equity Conversion Mortgage) which allows homeowners 62 and older to convert part of their home equity into cash. Note: Some Proprietary Reverse programs allow 55 or older to qualify
Key fundamentals:
- No required monthly mortgage payments
- Interest accrues over time (loan balance grows)
- The homeowner retains full ownership
- The loan is repaid when the home is sold, the borrower moves out, or passes away
- The loan balance is non-recourse (you never owe more than the home’s value)
Proceeds can be taken as:
- Lump sum
- Monthly income
- Line of credit (often the most flexible option)
- Or a combination
Importantly, the amount available is based on:
- Age of the youngest borrower
- Home value
- Interest rates
- FHA lending limits
What Is a Home Equity Investment (HEI)?
A Home Equity Investment is not a loan. Instead, an investor provides cash today in exchange for a percentage of the home’s future value or appreciation.
Key fundamentals:
- No monthly payments
- No interest rate
- No income qualification in many cases
- The homeowner gives up a share of future appreciation
- Must settle (repurchase or sell) at the end of a set term, often 10–30 years
The cost isn’t expressed as a rate, it’s expressed as future equity surrendered.
Why HEIs Almost Always Cost More Over Time
This is the part many homeowners don’t fully understand at the beginning.
HEIs are designed to:
- Protect the “investor” from inflation
- Capture upside appreciation
- Hedge against housing shortages
- Benefit from long holding periods
In practical terms:
- If a homeowner takes $150,000 today
- And agrees to share 25–40% of future value
- On a home that appreciates over 15–20 years
The effective cost can easily exceed what a reverse mortgage would have accrued, even at higher interest rates.
Unlike a loan:
- There’s no cap tied to a rate
- Appreciation compounds, especially in markets like Southern California
- Time works against the homeowner, not for them
Ownership & Control: A Major Distinction
| Feature | Reverse Mortgage | HEI |
|---|---|---|
| Ownership | Homeowner keeps 100% | Shared economic ownership |
| Cost structure | Interest accrual | Equity surrender |
| Appreciation | Stays with homeowner | Shared with investor |
| Term flexibility | Pay off anytime | Often fixed term |
| Non-recourse | Yes | Not always |
| Heirs impact | Can refinance or sell | Must buy out investor |
For homeowners concerned about:
- Estate planning
- Heirs
- Long-term control
- Aging in place
This distinction matters greatly.
When an HEI Might Make Sense
Despite the higher long-term cost, HEIs may appeal to homeowners who:
- Are under 62 and can’t use a reverse mortgage
- Have very short-term liquidity needs
- Expect to sell in the near future
- Don’t qualify for any loan product at all
Even then, the exit math should be reviewed carefully.
When a Reverse Mortgage Is Often the Better Tool
A reverse mortgage is frequently a better fit when:
- The homeowner plans to stay long term
- They want to preserve appreciation
- They want flexibility (especially with a line of credit)
- They want predictable outcomes
- They care about protecting heirs
In many cases, the effective annual cost of a reverse mortgage, when measured properly, is lower than the equity surrendered in an HEI.
NOTE: The HEI companies are conveying to the investors they should realize around a 18-20% annualized return. That’s the amount to borrower would be giving up.
The Bigger Picture: Equity Is a Tool, Not Just a Number
Both strategies can solve short-term cash flow problems. The difference is what you give up to access that equity.
- Reverse mortgages trade time and interest
- HEIs trade future ownership and appreciation
Neither is inherently “bad,” but they are not interchangeable.
Understanding the long term percentage cost not just the absence of payments, is critical before making a decision.
For homeowners who can qualify, a reverse mortgage is often the more efficient and controlled way to access equity, especially in appreciating markets.
HEIs can be useful in narrow scenarios, but they should be entered with eyes wide open and a full understanding of how much equity may be gone years down the road.
Can I Help?
I have originated many Reverse Mortgages through the years, and can broker them through several wholesale lenders. I know how the different programs work, and always available to discuss and evaluate specific scenarios.
If you are in the Los Angeles area, and have any questions or real estate sales or financing needs, feel free to contact me
Ron Henderson GRI, SRES, SFR, RECS, CIAS, CREN, GREEN
President/Broker
Multi Real Estate Services, Inc.
Gov’t Affairs Chair – Southland Regional Association of Realtors (2025)
Gov’t Affairs Chair – California Association of Mortgage Professionals (2017-2018)
Chairman – OutWest Marketing Meeting (Real Estate Education)
DRE #00905793 NMLS #310358
www.mres.com
ronh@mres.com
Specialist in the Art of Real Estate Sales and Finance
Real Estate market, mortgage rates, Los Angeles, San Fernando Valley, Conejo Valley, Simi Valley, Woodland Hills, West Hills, Calabasas, Chatsworth
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