Equity can pay you or bill you, and the difference is the structure

Published 2026-10-30 · Last reviewed 2026-10-30

A house is both an asset and a bill. The asset is the equity - the value minus what is still owed - and it can be borrowed against with a line of credit or converted into income with a reverse mortgage. The bill is the property tax, charged every year on an assessed value at a rate set by several local authorities at once. This page prices the borrowing, the conversion and the recurring charge separately, because each one uses a different number as its starting point.

A HELOC lends against the equity you already have

A $450,000 home with a $200,000 mortgage holds $250,000 of equity, but a lender stops at 80 percent of the value: $360,000 minus the balance leaves $160,000 of available credit, which is less than the equity itself. Drawing $50,000 costs $354.17 a month in interest-only payments during the 10-year draw -$42,500 over that phase, with the balance still at $50,000 when repayment starts. The 15-year repayment then costs $492.37 a month and $38,627 of interest, so the two phases together cost $81,127 for the use of $50,000. The interest-only phase is what makes the line feel cheap; the repayment phase is where the cost arrives.

A reverse mortgage spends the equity instead of the paycheck

A reverse mortgage runs the other way: it converts equity into cash without a monthly principal-and-interest payment, and the loan is repaid when the home is sold or the last borrower leaves. The HECM principal limit is the maximum claim amount times a principal limit factor. A $500,000 appraisal sits below the $1,209,750 national limit, so the MCA is $500,000 and at a 50 percent factor the principal limit is $250,000. A $1,500,000 appraisal is capped at the national limit, so the MCA stays at $1,209,750 and the principal limit is $604,875. The factor itself is supplied by HUD for the youngest borrower's age and the expected rate - the page takes it as an input rather than inventing one, because the factor tables are not printed here.

Property tax is a mill rate on an assessed value

Property tax starts from a market value, applies the county's assessment ratio, removes exemptions, and multiplies the result by a mill rate. On $400,000 at 80 percent the assessed value is $320,000; $25,000 of exemptions leaves $295,000; at 25mills the bill is $7,375 a year, or $614.58 a month if the lender escrows it. That is 1.84 percent of the market value, or $1,844 for every $100,000 of value. The exemption is not a discount on the rate: it removes assessed value before the mill rate is applied, so its value depends on the rate as well as the amount.

Where these numbers come from

• The repayment schedule. The HELOC repayment leg spreads $50,000 at 8.5 percent over 15 years with the same monthly-payment math the loan pages use; the interest-only phase is the same monthly rate applied to a balance that never falls, which is why it is priced separately.
• HUD Handbook 4000.1. The maximum claim amount is the smallest of the appraised value, the $1,209,750 national limit and - for a HECM for Purchase - the contract price, and the principal limit is that amount times the factor. The factor comes from your lender's disclosure.
• The property-tax steps. Market value goes to assessed value, then to taxable value, then to the bill: $320,000, $295,000 and $7,375 are the three steps, and the mill rate only enters at the last one.

What this guide does not cover

It prices one HELOC, one HECM and one county bill. It does not model the variable rate on a HELOC, its margin and cap, closing costs or annual fees, a lender freezing the line, or what happens when the draw period ends with a balance that still has to be repaid. On the reverse side it leaves out mandatory obligations, required set-asides, the upfront and annual mortgage insurance premiums, the servicing fee, the occupancy and tax-and-insurance conditions that can make the loan due, and the rules for a non-borrowing spouse. Property tax appeals, assessment caps, special assessments, the eligibility rules behind each exemption and delinquent interest are all outside the arithmetic. Every one of these can change the answer more than the inputs shown here.

Map out a line of credit in the HELOC Calculator, test a HECM in the Reverse Mortgage Calculator, and check the annual bill in the Property Tax Calculator.

Estimates only - not financial, tax or legal advice, and it does not predict how a lender or an assessor will treat a particular property. Read the full disclaimer.