A home equity line of credit (HELOC) or a reverse mortgage are two alternatives you can consider if you want to access the equity in your house for a lump sum of cash.
Both these loans allow you to convert your home equity into cash and differ in certain aspects like age and equity requirements, interest rates, disbursement, repayments, etc. To choose one of these, you must know the difference between home equity loans and reverse mortgages.
If you are 62 years old or more and own a home, you can convert this home equity into cash for whatever you need, from healthcare expenses to living expenses. This allows you to get money in return for your home while you stay in the home, without having to leave it. The lender pays you the money based on a fixed percentage of your house’s value in a reverse mortgage.
The title of your home remains yours till you are alive. However, if you stay out of your home for over a year, die or sell it away, or fail to pay any federal debt ( like home equity insurance and taxes).
The lender can sell the home if any remaining equity passes to the homeowner or his heirs. Over time the debt increases while home equity decreases as the lender purchases more and more of it. This means the interest adds up over time. Unlike home equity loans, the reverse mortgage does not require you to make monthly payments. The lender pays the homeowner instead of him paying the lender.
Home Equity Loans
Home equity loans are the second mortgage. Being a homeowner, you can borrow money based on your home equity and repay the money in monthly installments. However, according to America’s # 1 reverse mortgage lenders (https://reverse.mortgage/), these mortgages are considered riskier than the first mortgages.
However, these loans have low-interest rates as the money is secured by your home. You can get a payment in a single chunk. You would need to pay off the primary amount (principal) along with interest over as long as 30 years. Here interest would be fixed. Factors like age, the value of your home, and the ratio of current interest act as determinants of the amount you will be getting a loan.
Reverse mortgage – Age must be at least 62.
Home equity – No age limit but over 18 in some countries.
Reverse mortgage – Must have mortgage balance and house outrage.
Home equity – At least 50% equity in the home is a must.
Reversemortgage loans are held off as soon as the householder fails to pay taxes or insurance or under other circumstances.
Home equity loans are made with fixed interest rates and principal over a fixed period. Longer repayment period
A reverse mortgage does not offer any tax advantage until the loan finishes.
For home equity loans from 2018 to 2025, the tax applies only when the money is spent on buying, building, or regarding the homeowner’s estate that secures the loan.
No income requirements for a reverse mortgage. However, the lenders might check if you are not delinquent towards your ongoing insurance, taxes, and other property charges.
Home equity loan: It requires proof of regular income (to fulfill financial expenditures).
Reverse mortgage – Payments can be made monthly, fixed, or lump-sum payments, or a hybrid of these (as needed).
Home equity loan – The lump-sum kind where you get the single chunk amount to be returned over a fixed period.
In finding which option is better for you, you might also need to ponder upon many other factors.
A reverse mortgage will be the best option for you if you are looking for a long-term income source; meanwhile, your home wouldn’t be considered part of your property until the loan is terminated. In addition, if the mortgage is shared between both spouses, then your rights will be reserved as long as one of the spouses is alive (it won’t be sold out). As long as you or your heirs can repay the loan, a reverse mortgage allows you to keep your home as a possession for yourself and your heirs.
A home equity loan will be the best option for you if you are looking for a short-term loan and want to keep your home. If you think you can make monthly repayments (fixed) and have a sound income source, you can consider this option.