HELOC vs. Reverse Mortgage in Retirement: The Texas Rules and the Math

Why Home Equity Belongs in the Plan

Most retirement plans treat the house as a place to live and a line on the net worth statement. That is reasonable: the home is not a portfolio, and most people want to stay in theirs as long as they can. But for a great many Texas households, from the Hill Country to the suburbs of Dallas, Houston, Austin, and San Antonio, the home is one of the largest assets the family owns, often with a large untaxed gain and no mortgage. Leaving it out of the plan entirely means ignoring the reserve most likely to be there when everything else has been stretched.

The question is not whether to spend the house. It is what the home can do for the plan while the household still lives in it, and what it costs to keep that option open. There are three broad ways to get at home equity:

Borrow against it, and repay. A HELOC, a home equity loan, or a cash-out refinance. Each needs income to qualify and payments to keep it in good standing.

Borrow against it, and repay later. A reverse mortgage, available from age 62, which needs no monthly payments and is repaid from the home when the last borrower leaves.

Sell some or all of it. Downsizing, or less commonly, selling a future interest in the home while keeping the right to live there.

This article is about the first two, and mostly about the choice between a HELOC and the federally insured reverse mortgage, the Home Equity Conversion Mortgage (HECM). The other ways appear near the end, because they are part of the same decision.

How a HELOC Works

A home equity line of credit is a revolving line secured by the home. The lender approves a maximum amount, and the owner draws on it as needed, repays, and draws again. It has two phases.

The draw period. For a set number of years, often 10 though some lenders set it shorter, the owner can draw on the line. Payments during this phase usually need to cover only the interest on whatever has been drawn. An unused line costs nothing in interest.

The repayment period. When the draw period ends, the line closes to new draws, and any balance is repaid in regular installments over the repayment period. A household that wants a line available after that point needs to open a new one, which means qualifying again.

The rate floats. Most HELOCs charge the prime rate plus or minus a margin, so the cost of a balance moves with the Federal Reserve. That matters most at exactly the wrong time, as the chart below shows.

From March 2020 to March 2022, the prime rate sat at 3.25%, so a $100,000 balance on a line priced at prime cost about $3,250 a year in interest. By July 2023, prime had reached 8.50%, and the same balance cost about $8,500 a year, roughly 2.6 times as much, in about 16 months. Prime eased to 6.75% by December 2025 and rose again to 7.00% in September 2026, about $7,000 a year on the same balance. Rates climbed fastest in 2022, a year when stocks and bonds fell together. A household drawing on a line to avoid selling investments in that decline would have watched the line’s cost climb while it waited for markets to recover.

Qualifying depends on income. A HELOC is underwritten like other credit: the lender looks at credit history, the home’s value, and whether the household’s income can carry the payments. That is the main reason to open one while still working, or early in retirement while income is easy to document, rather than when the need arrives. A household that waits until a market decline, a health event, or a large expense may find the paycheck that qualified it is gone, or that lenders have tightened their standards. In June 2008 the FDIC issued guidance to banks that were reducing and suspending home equity lines as home prices fell and borrowers struggled.

A lender can freeze or reduce it. Federal rules let a lender stop new draws or cut the limit in a short list of situations, chiefly when the home’s value falls significantly below its appraised value or when the lender reasonably believes a material change in the borrower’s finances means they can no longer repay. The federal commentary treats a decline that cuts in half the cushion between the line’s limit and the owner’s equity as significant. In the regulators’ own example, a $100,000 home with a $50,000 first mortgage and a $30,000 line has a $20,000 cushion, so a fall in value to $90,000 is enough. Once the condition ends, the lender must reinstate the line and can never charge a fee to do so, though it can make the borrower ask, and federal rules let it pass along the cost of an appraisal or credit report used to check, where state law allows. A line is a backstop only as long as the lender keeps it open, and the conditions that would make a household want to draw on it are often the same ones that let a lender close it.

It can do more than sit in reserve. For younger households, a line opened while working can also be a source of liquidity for a big transition. Some of our clients have used one to fund the early months of starting a business. Our founder, Jim Crider, opened a line before leaving his old job and drew on it when he launched his business, which is the same idea in its plainest form: open the line while the paycheck is still there to qualify for it.

The Texas Rules for Home Equity Lines

Texas protects the homestead more than almost any other state, and home equity lending here is governed by the state constitution, Article XVI, Section 50, rather than by ordinary statute. A Texas HELOC must follow both the general rules for home equity loans in Section 50(a)(6) and the line-of-credit rules in Section 50(t). The ones that shape a retirement plan:

The 80% ceiling. All debt secured by the homestead, including the full amount of the line, cannot exceed 80% of the home’s fair market value on the day the line is opened. For a $650,000 home with no mortgage, that is a line of up to $520,000, though lenders often approve less based on income. The 80% is measured once, at opening, so a home that appreciates later does not add room to the existing line; a household that wants more has to replace it, and generally not within a year of opening it.

Draws of at least $4,000, and no cards or checks. Each advance must be at least $4,000, and the owner cannot draw with a credit card, debit card, or preprinted check the owner did not request. Texas lines are meant for planned withdrawals, not everyday spending.

Fees only at opening, and capped. Fees to originate, evaluate, maintain, record, insure, or service the line can be charged and collected only when the line is established, and none can be charged for a draw. Those fees are capped at 2% of the line’s original principal amount, not counting a third-party appraisal, a survey by a licensed surveyor, the state base premium for the lender’s title policy, or bona fide discount points. Annual or non-use fees common in other states do not fit those rules, and on their face neither do fees charged later for closing a line early, though the agreement is still worth reading.

No unilateral changes. The lender may not unilaterally amend the line. That does not stop a freeze: Texas lenders typically reserve the federal freeze rights in the agreement at opening, and one Texas credit union’s early disclosure lists them almost word for word. What Texas forbids is changing the terms afterward.

Payments at least monthly. During the draw period, each payment must at least cover the interest that has accrued; afterward, payments must be substantially equal installments.

Slower to open, harder to lose. A Texas home equity loan or line cannot close until 12 days after the borrower receives the required notice, and the borrower can cancel within three days after closing. Only one Section 50(a)(6) loan can be on the home at a time. The loan is without personal liability apart from actual fraud, and a lender can foreclose only with a court order.

How a Reverse Mortgage Works

A reverse mortgage lets a homeowner 62 or older borrow against the home with no required monthly payments. Interest and mortgage insurance are added to the balance, and the loan is repaid when the last borrower dies, sells, or moves out. Most reverse mortgages are HECMs, insured by the Federal Housing Administration, and the federal rules decide most of what matters.

How much it opens. The amount available, the principal limit, is the home’s value (up to a national limit of $1,249,125 in 2026) times a factor from a table HUD publishes. The factor depends on two things: the age of the youngest borrower (or of an eligible spouse who is not on the loan) and the expected interest rate. Older borrowers get a larger factor, because the loan is expected to run fewer years. Higher rates get a smaller one, because the balance is expected to grow faster. For an adjustable-rate HECM, the expected rate is the weekly average 10-year Treasury yield, about 4.9% in early November 2026, plus the lender’s margin.

Over the rate swings a household can see in a decade, the rate matters about as much as the age. At 66, HUD’s table opens 43.8% of a home’s value at an expected rate of 5% and 30.1% at 8%. Ten more years of age at 6.5% moves the factor from 36.3% to 42.7%, while a rate 1.5 points lower at 66 moves it to 43.8%. At 62 the range runs from 41.0% at 5% to 27.2% at 8%, and at 85 from 59.1% to 47.6%. Michael Kitces made this point in 2013: for a household weighing whether to open a line now or later, the rate environment can matter as much as the birthday.

What it costs to open. A HECM is expensive to set up, and the costs are usually added to the loan rather than paid in cash:

Upfront mortgage insurance. 2% of the home’s value, up to the national limit. On a $650,000 home, $13,000.

Origination fee. The greater of $2,500 or 2% of the first $200,000 of value plus 1% of the rest, capped at $6,000. On a $650,000 home, the cap applies: $6,000.

Third-party costs. The appraisal, title insurance, recording, and the required counseling session. They vary by home and county; our example assumes $4,000.

Ongoing mortgage insurance. 0.5% a year of the outstanding balance, added to the balance along with the interest.

A worked example. Consider a hypothetical Texas couple, both 66, with a $650,000 home and no mortgage. Assume a lender margin of 1.75 points, which puts the expected rate at about 6.65%. HUD rounds that to the nearest eighth of a point, 6.625%, where the factor is 35.7%. The principal limit is $232,050. Opening costs of $23,000 come out of it, leaving a line of $209,050. In the first year, total draws (counting the costs paid at closing) are generally limited to 60% of the principal limit, about $139,230, so about $116,230 is available the first year and the rest after that. The line then grows at the loan’s actual interest rate, the note rate, which for this loan is the 30-day average SOFR (3.91% in early November 2026) plus the same 1.75-point margin, about 5.66%, plus the 0.5% insurance rate. These numbers are illustrations, not a quote: margins, costs, and rates vary by lender and by month.

How the money comes out. A HECM can pay as a line of credit, as monthly payments for a set term or for as long as the borrower lives in the home, or as a combination; a fixed-rate HECM pays out only as a single lump sum at closing. For planning purposes, the line of credit is usually the most flexible choice.

The unused line grows. This is the feature that sets a HECM apart. The principal limit grows each month at the loan’s interest rate plus the 0.5% annual mortgage insurance rate, and the unused part of the line grows with it. It grows whether or not the home’s value rises, and the lender cannot freeze or reduce it because the home’s value falls or because the borrower’s finances change, as long as the loan stays in good standing. That is the opposite of a HELOC, whose limit is fixed at opening and can be frozen in a falling market.

What makes it come due. The loan becomes due when the last borrower dies or sells, when the home is no longer any borrower’s principal residence (including a stay in a care facility that runs longer than 12 consecutive months), or when the borrower fails to pay property taxes or homeowner’s insurance or to keep the home in repair. Before approving the loan, the lender assesses whether the household can keep paying taxes and insurance, and it may require part of the line to be set aside for them. A household that falls behind on property taxes can lose the home, reverse mortgage or not.

Heirs and spouses. The loan is non-recourse: neither the borrower nor the heirs ever owe more than the home is worth. Heirs who want to keep the home can pay the lesser of the loan balance or 95% of its appraised value; heirs who sell keep whatever is left after the balance is repaid. A spouse who is too young to be a borrower can be named as an eligible non-borrowing spouse, which can let them stay in the home after the borrower dies, though they cannot draw on the line.

The Texas Rules for Reverse Mortgages

Reverse mortgages are also written into Section 50 of the Texas Constitution, in subsection (k), and Texas adds protections to the federal rules:

Consent and age. The lien must be voluntary, with the written consent of each owner and each owner’s spouse, and the borrower or the borrower’s spouse must be 62 or older. As with home equity loans, there is no personal liability.

Counseling and a waiting period. The borrower and spouse must certify in writing that they received counseling on reverse mortgages and their alternatives, between 180 and 5 days before closing, and closing cannot happen until 12 days after the lender delivers a separate notice.

The property tax deferral warning. That notice tells Texas homeowners something specific: a homeowner 65 or older may defer property taxes, but a reverse mortgage may require giving up an existing deferral and paying the taxes each year. That matters for anyone who has filed, or is thinking about filing, the over-65 deferral, which our article on Texas property tax at 65 treats as what it is, a loan at 5% a year secured by the home.

Foreclosure only by court order, with notice. Apart from cases where all borrowers have died or the home has been sold, a Texas reverse mortgage can be foreclosed only with a court order, after written notice and a chance to cure: at least 30 days for most defaults, or 20 for a lien that threatens the lender’s priority, which follows a separate 10-day notice.

A penalty on the lender. If a lender fails to make an advance the loan requires and does not fix it after notice, it forfeits all principal and interest on the loan.

Buying a home with one. Since 2013, Texas has allowed a reverse mortgage to help buy a new homestead, which can matter for a household that downsizes and wants to keep more of its sale proceeds for the rest of the plan.

Taxes, Medicare, and Medicaid

Draws are loan proceeds, not income. Money drawn from a HELOC or a reverse mortgage is borrowed, so it is not taxable income. It does not count toward the income that makes Social Security taxable, toward the income that sets Medicare’s IRMAA surcharges, or toward the income limits that phase out the $6,000 deduction for people 65 and older (2025 through 2028). For a household before Medicare, it does not reduce ACA premium credits. That is one reason a line can be useful in a year when the tax plan wants income kept low.

The interest deduction is narrower than most people think. Since 2018, and permanently under the 2025 tax law, interest on home-secured debt is deductible only on debt used to buy, build, or substantially improve the home, up to $750,000 of such debt. Interest on a HELOC or reverse mortgage used for living costs, a car, or a trip is not deductible at all. Interest on money used for a substantial improvement, or on a HECM that paid off an existing purchase mortgage, can qualify, and only for households that itemize, which Texas homeowners do more often now that the deduction for state and local taxes is larger, as our article on the SALT cap for Texas homeowners explains.

Reverse mortgage interest is deductible only when paid. Most households pay taxes on a cash basis, so the interest that accrues on a reverse mortgage for years is not deductible until it is actually paid, which usually happens all at once when the home is sold. Barry Sacks and colleagues, writing in the Journal of Taxation in 2016, explained why that deduction is often lost and how to match it to income in the payoff year, for example by taking IRA withdrawals or Roth conversions in the same year. Heirs who pay the interest when they sell may also be able to deduct it, if it qualifies. The catch since 2018 is the rule above: for a line used for living costs, there is no deduction to recover. The planning still matters for the qualifying share.

Mortgage insurance is deductible again, for some. Starting in 2026, mortgage insurance premiums can again be treated as deductible mortgage interest. But the old income phaseout came back with it: the deduction shrinks by 10% for each $1,000 of adjusted gross income over $100,000 and is gone above $109,000, and the premium has to relate to debt that bought, built, or improved the home. Above $109,000 of adjusted gross income, or on a line used for living costs, the premiums are not deductible.

Medicaid’s home equity limit. For Medicaid to pay for long-term care, a person’s equity in the home generally cannot exceed a limit, $752,000 in Texas in 2026. The limit does not apply while a spouse, a child under 21, or a blind or disabled child lives in the home, and Texas rules let a person reduce countable equity with a reverse mortgage or home equity loan. Borrowed money kept past the month it arrives counts as a resource, though, so the timing of draws matters. Starting in 2028, the 2025 law caps the limit at $1,000,000 for homes not on land zoned for agriculture, which matters mainly in states that use a higher limit than Texas does. Medicaid planning is its own specialty, and recovery against the estate after death is a separate question; our article on paying for long-term care covers how we think about care costs more broadly.

What the Research Says About Standby Reverse Mortgages

In the February 2012 Journal of Financial Planning, Barry and Stephen Sacks tested a strategy that drew on a reverse mortgage line after years of negative returns. Six months later, in the same journal, three researchers at Texas Tech, John Salter, Shaun Pfeiffer, and Harold Evensky, named the idea the standby reverse mortgage and tested a retiree who opens a reverse mortgage line early and leaves it unused, drawing on it only when the cash reserve has run out and the portfolio has fallen well below its planned path, and repaying it after the portfolio recovers. The point was to avoid selling investments at low prices. In their simulations, a 62-year-old spending 5% of the starting portfolio a year, adjusted for inflation, saw the chance of the money lasting 30 years rise from about 52% to about 78%. A December 2013 follow-up by the same researchers, sponsored by a reverse mortgage lender that supplied the loan data, found the sustainable spending rate rising from about 3.25% to between 4.0% and 6.75%, depending on rates and on how much equity the home held, and argued that treating a reverse mortgage only as a last resort can be a mistake when rates are rising.

The mechanism is the growth of the unused line. Kitces, reviewing this research in 2013, framed the trade-off against a HELOC: the HELOC is far cheaper to open, but it can be frozen and does not grow. The chart below follows our hypothetical couple’s line for 20 years, alongside a HELOC of the same starting size and the cost of opening the reverse mortgage.

If rates stayed where they are, the couple’s unused reverse mortgage line would grow from $209,050 at 66 to about $386,400 at 76 and about $714,400 at 86. A HELOC of the same size would stay at $209,050 until its draw period ended, typically after 10 years, when a new line would mean qualifying again. But the reverse mortgage line is not free: the $23,000 of opening costs is part of the loan from the first day, and it grows at the same rate, to about $42,500 after 10 years and about $78,600 after 20, owed when the home is sold, even if the line is never used.

Four things are worth knowing before reading too much into the research:

The cheap version no longer exists. The 2012 study used the HECM Saver, which carried a tiny upfront insurance premium, and the 2013 follow-up assumed 0.5%. HUD ended the Saver for case numbers assigned from September 30, 2013, and since October 2017 every HECM pays 2% of the home’s value up front, while the yearly premium fell from 1.25% to 0.5%, which also slows the growth of an unused line. A standby line that costs $23,000 to open is a different proposition from one that cost a few thousand.

Rates cut both ways. A higher rate shrinks the line at opening but makes an unused line grow faster afterward. The researchers found the strategy worked best when rates were low at opening. The 2013 study’s best results came with a 10-year Treasury yield near 2.3%; at about 4.9% today, rates sit roughly between what it called moderate and high, where the gain was smaller.

The results are simulations. Both studies used Monte Carlo projections of markets and rates, which tell us how a rule behaves across many made-up futures, not what the next 30 years will bring.

The benefit depends on the rules for using it. The line helped in the research because it was drawn only after a decline and repaid after a recovery. A household that draws on it for ordinary spending gets a reverse mortgage, not a standby.

Using Home Equity in a Down Market

The research points to a real use that does not require a reverse mortgage. In a long decline, the first line of defense is the cash reserve. In our plans, that is the paycheck bucket described in our article on the retirement bucket strategy, topped up twice a year in every market. Some of our clients have also drawn on a HELOC in a decline rather than sell investments at low prices, as a second layer behind the cash reserve, not a replacement for it.

That only works if the line is open when the decline arrives, which is the case for opening it early, and if the household is clear about the costs. As 2022 showed, the decline and a rising prime rate can arrive together. The longer a decline lasts, the more the interest adds up, which is why the line sits behind the cash reserve and the plan’s spending guardrails rather than in place of them. Why the first years of retirement carry the most risk from a decline is the subject of our article on sequence-of-returns risk.

When a Reverse Mortgage Moves to the Front

For most of the households we work with, a reverse mortgage stays in the back pocket. A few situations can bring it forward:

A mortgage that is still being paid. A retiree who still carries a mortgage can use a HECM to pay it off, removing a required monthly payment from the budget. Kitces has made the case that this can reduce the risk a fixed payment creates when markets fall early in retirement, since the payment no longer forces sales from the portfolio. The first-year limit allows for it: draws can reach the greater of 60% of the principal limit or the amount needed to pay off existing liens and closing costs plus 10% of the principal limit. The costs still have to be weighed against simply keeping the existing loan.

A move to a smaller home. A HECM for purchase lets a household 62 or older buy a new home with part cash and part reverse mortgage, with no monthly payments, which can leave more of the old home’s sale proceeds in reserve for the rest of the plan.

A long life with most of the wealth in the house. When the portfolio is running low and the home is the remaining reserve, a reverse mortgage can turn it into income without a move.

A need that a HELOC can no longer meet. A household whose income no longer qualifies it for a HELOC, or whose line has closed, may find a reverse mortgage the only way to borrow against the home without payments.

Care at home. Paying for help at home can let someone stay in the house longer, and the house can help pay for it.

In each case, the comparison is the same: what the reverse mortgage costs, in fees and in interest that compounds for years, against the next-best way to meet the same need.

The Other Ways to Use a Home

A home equity loan. A fixed amount borrowed at once, usually at a fixed rate, repaid in installments. It fits a known, one-time need better than an open-ended reserve.

A cash-out refinance. A new first mortgage for more than the old one, with the difference paid in cash. In Texas, a cash-out refinance of a homestead is itself a Section 50(a)(6) home equity loan, with the same 80% ceiling, and since only one such loan can be on the home at a time, it cannot sit alongside a HELOC.

Downsizing. Selling, buying smaller, and investing the difference turns equity into a portfolio, and it often lowers property taxes and upkeep. On a sale, up to $250,000 of gain is excluded from tax for a single owner and $500,000 for a married couple. A home kept until death instead gets a new basis at its value then, and in Texas, community property can step up in full at the first spouse’s death, as our article on the step-up in basis and community property explains. The Texas tax ceiling enters the decision as a number to weigh, not a reason to stay or go.

The Texas property tax deferral. A homeowner 65 or older can postpone property taxes until they leave the home, at 5% a year, secured by the home. It is a loan, and a cheap one compared with most, but a reverse mortgage may require giving up the deferral and paying the taxes each year.

Selling the remainder interest. A less common option: selling the right to own the home after the owner’s death, often to a buyer outside the family (a sale to family does not qualify for the home-sale exclusion) who wants the property eventually, while keeping the right to live there for life. The tax rules can make this attractive for an owner with a large gain, but the home will not pass to heirs, and there is less left to borrow against later. We plan to cover it in its own article.

Shopping for the Line

Many households open a HELOC wherever they already bank. We very often shop lenders for our clients instead, and in our experience local and regional banks and credit unions are often the best fit, though it varies. What we compare:

The rate and how it is set. The margin over prime, any introductory rate and when it ends, and whether part of the balance can be locked at a fixed rate.

The terms. How long the draw period runs, how the repayment period works, and how large a line the lender will approve.

The costs. What it costs to open, and who pays the third-party costs.

What the household plans to do with it. That one decides how the others are weighed. For a line drawn right away, what matters most is the interest it will cost and how long a lower rate takes to make up for an opening fee. In a hypothetical example, a line priced 0.5 point lower with a $1,500 fee saves $500 a year on a $100,000 balance, so it pays for itself in three years at that balance. For a standby line that may never be used, the cost to open matters more, since the rate only matters if the household draws.

Fees that could come back later. Outside Texas, some lenders that cover a line’s opening costs charge them back if the line is closed or the home is sold within a few years. That matters for a household that may move. In Texas, the constitution allows fees only when the line is opened, but the agreement is still worth reading.

The same shopping applies to a reverse mortgage: margins and lender credits vary, and a lower margin enlarges the line at opening and slows the growth of any balance (and of the unused line).

Questions Worth Asking

Before opening a HELOC. How long is the draw period, and what happens to the balance when it ends? How is the rate set, what is the margin over prime, and is there an introductory rate? What does it cost to open, and is any fee charged later if the line is closed or the home is sold? In which situations can the lender freeze or reduce the line? Could we still qualify for this line after the paycheck stops?

Before considering a reverse mortgage. What is the expected rate, and how much would the line be at our ages today, and in a few years? What will it cost to open, all in, and how will that balance grow if we never draw? How would it affect our property tax deferral, if we have one? What happens if one of us moves to a care facility, or if one of us dies? What do we want to leave our heirs in the home, and how would they repay the loan?

How We Think About It

We lean toward opening a HELOC once a household has enough equity in its home to make one worthwhile, and while it is easy to qualify, ideally before leaving a paycheck. We tend to treat it first as a backstop for emergencies, one the household hopes never to use. Some households also use it to manage the risk of a decline early in retirement, as a second layer behind the cash reserve, or, earlier in life, as liquidity for a big transition such as starting a business. Because a line can be frozen, floats with prime, and closes at the end of its draw period, it is not money the plan depends on.

We lean toward shopping the line rather than taking the first offer, with the choice of lender driven by what the household plans to do with it: the rate when it will be used, the cost to open when it will most likely sit unused, and in every case the fees that might come back later.

We lean toward making sure a household understands how a reverse mortgage works, and toward treating it as even more of a backstop than a HELOC. It costs far more to open, its balance compounds, and it uses up equity the household or its heirs may want later. For a household whose home holds most of its remaining wealth, though, it can turn the house into a reserve for spending, giving, or care without a move. The situations described above can move it forward; when one arises, we look at it case by case with the household’s own numbers. The same goes for the standby strategy the research describes: it can make sense for some households, and for others its cost outweighs what it protects against. We lean toward modeling that trade-off rather than assuming the answer either way.

The honest trade-offs: a HELOC’s low cost comes with the risk that it will not be there when it is needed most, and a reverse mortgage’s reliability comes at a price paid up front and compounding for years. A plan that keeps both options in view, and is clear about which comes first, is better placed than one that discovers them in a crisis. How home equity fits a plan built for a long life is part of our article on how long a retirement plan should last.

Common Questions

Can a lender freeze a HELOC in Texas?

Yes. Texas law bars a lender from changing a line’s terms after it opens, but Texas lenders typically reserve the federal freeze rights in the agreement at the start. Under those rights, a lender can stop new draws or reduce the limit if the home’s value falls significantly below its appraised value, if it reasonably believes the borrower can no longer repay because of a material change in finances, or in a few other cases, and it must reinstate the line once the condition ends. A federally insured reverse mortgage line cannot be frozen or reduced because home values fall or the borrower’s finances change, as long as the loan is in good standing.

How much can you borrow with a HELOC in Texas?

All debt secured by a Texas homestead, including the full amount of the line, cannot exceed 80% of the home’s fair market value on the day the line opens. For a $650,000 home with no mortgage, that is a line of up to $520,000, though lenders often approve less based on income. The 80% is measured once, so later appreciation does not enlarge the line. Each draw must be at least $4,000, and fees can be charged only when the line opens, capped at 2% of the line, not counting a few items such as a third-party appraisal or a survey.

Is a HELOC or a reverse mortgage better in retirement?

A HELOC costs little to open and, in Texas, nothing to hold unused, but its rate floats, its draw period ends, and it can be frozen. A reverse mortgage costs far more to open, yet needs no payments, cannot be frozen for a falling home value, and its unused line grows. We lean toward a HELOC as the first backstop for most households, opened while it is easy to qualify, and toward keeping a reverse mortgage in the back pocket, chosen case by case. The better choice depends on the household’s age, rates, how likely the line is to be used, and what it wants to leave in the home.

How much can you borrow with a reverse mortgage at 66?

It depends on the home’s value, up to $1,249,125 in 2026, and on the expected interest rate. Under HUD’s table, a 66-year-old can open about 43.8% of the home’s value at an expected rate of 5%, 36.3% at 6.5%, and 30.1% at 8%, before opening costs. On a $650,000 home at an expected rate of about 6.65% (35.7% in HUD’s table), that is $232,050, or about $209,050 after $23,000 of hypothetical costs. First-year draws, including the costs paid at closing, are generally limited to 60% of the principal limit, which leaves about $116,230 of new money in the first year here.

Is money from a reverse mortgage taxable?

No. Reverse mortgage advances are loan proceeds, not income, so they do not make Social Security taxable or raise Medicare’s IRMAA surcharges. The interest is deductible only when it is actually paid, usually when the home is sold, and only if the money was used to buy, build, or substantially improve the home, or paid off a mortgage that did. For a line used for living costs, the interest is not deductible.

What happens to a reverse mortgage when the borrower dies?

The loan becomes due when the last borrower dies, unless an eligible non-borrowing spouse can remain in the home. Heirs can sell the home and keep what is left after the balance is repaid, or keep it by paying the lesser of the balance or 95% of its appraised value. The loan is non-recourse, so heirs never owe more than the home is worth.

Does a reverse mortgage affect Medicaid in Texas?

Reverse mortgage advances are loans, not income, but money kept past the month it is received counts as a resource. For long-term care, Texas Medicaid limits home equity to $752,000 in 2026, unless a spouse or certain children live in the home, and a reverse mortgage or home equity loan can reduce countable equity. Starting in 2028, the limit is capped at $1,000,000 for homes not on land zoned for agriculture. Because Medicaid rules are detailed and estate recovery is a separate question, this is a decision to make with an elder law attorney.