Reverse Mortgage Line of Credit vs Home Equity Line of Credit
For many homeowners over the age of 62, money usually only goes out and rarely comes in. There are miscellaneous expenses that must be paid, such as food to consume and property taxes; and there are other expenses, such as traveling to see your grandchildren and paying off medical expenses.
However, there is an excellent financial product that allows money to come in, which is a reverse mortgage. A reverse mortgage allows seniors over the age of 62 to tap into their home equity without having to go through the tedious process of moving from or selling the home.
The amount of money that a senior can have is dependent upon the value of their current home. Over a period of time, the debt on the loans increase, while your equity on the home decreases, effectively having the lender own an increase share of the property.
Despite this, it is imperative that payments on property taxes, home owner’s insurance, etc. are continued to be promptly paid; otherwise, the lender has the right to make the loan come due.
Our company, Shop Reverse Mortgage, has an outstanding relationship with the top banks in operation today, including but not limited to Wells Fargo, Bank of America, HSBC, JP Morgan Chase, Citi Bank and TD Bank. This is important because we are able to provide better rates than our competitors.
There are a couple payment options to choose from, but in this article we will focus on the line of credit in relation to a reverse mortgage and a home equity line of credit (HELOC). A reverse mortgage line of credit requires interest to be paid on the money withdrawn or used. This payout option is advantageous because the money available grows over time.
A home equity loan is similar to the reverse mortgage in that it allows the option to tap into the home equity and then convert it into cash. One type, the HELOC allows the borrower on a basis of their chosen to withdraw an approved credit limit amount. Interest is paid on money that is withdrawn. Since they are adjustable loans, payment fluctuates with the interest rate—low interest rates mean lower payments, while high interest rates demand higher payments.
The reverse mortgage line of credit vs home equity line of credit differs slightly. Reverse mortgages require differed payment, where the loan is paid off with proceeds from the sale of the property. The home must be owned outright by the homeowner, who must also be over the age of 62. This is advantageous because it rewards those towards the end of their lives the ability to purchase a product that is geared toward their success.
One of the highlights of receiving a cash infusion from a reverse mortgage line of credit is that there are no income requirements. The borrower isn’t punished for having worked their whole lives and just wanting to enjoy their retirement. As long as full payments are being made on the property, the borrower will be approved.
HELOC, on the other hand, as previously stated, have monthly payments that fluctuate with the current interest rate. There is not age requirement to initiate a HELOC. The homeowner must have at least 20 percent equity in their home. To have this product requires a steady flow of income and a good credit score. Lastly, the interest is usually tax deductible for amounts that do not exceed $100,000.
In conclusion, “a reverse mortgage is considered a better choice [than an HELOC] if you are looking for a long-term income source,” according to Investopedia. A reverse mortgage allows one to spend their cash infusion on however they deem appropriate, while still protecting oneself in the long-term. This is fantastic because it provides capital for food to consume, property taxes to pay off, traveling to see your grandchildren and paying off medical expenses.
Basically, for the senior citizen a reverse mortgage, which is a superior product to an HELOC, allows the borrower to pursue their passion and engage in activities that are most important.
If after reading this article you have additional questions on a reverse mortgage line of credit vs a home equity line of credit, great! To obtain additional information or guidance, our Learning Center, which can be visited by clicking here, provides a mammoth of related information. Basically, any question that you can fathom is available on our blog that provides current information on the subject.
Alternatively, or following browsing our Learning Center, you can reach out to one of the specialist who is standing by to answer your questions. They are available on Monday to Friday, from 9 a.m. to 8 p.m. EST, and Saturday and Sunday, from 12 p.m. to 3 p.m. EST. They’re knowledgeable on the subject of reverse mortgages. In addition, the specialists can also find out if you qualify, after having analyzed your current home and other related information.