What are the Similarities Between a Reverse Mortgage and a Home Equity Loan?

Reverse mortgages explained! Learn how they compare to home equity loans.

If you are over the age of 62, you undoubtedly have heard that you should invest in a reverse mortgage. Reverse mortgages are like home equity loans in that they are loans taken out against the value of your home. However, there are significant differences between the two programs.

A REVERSE MORTGAGE PROGRAM GIVES YOU MONEY

Unlike a home equity loan, which gives you one lump sum of money that must be paid back within a certain amount of time, reverse mortgages give you a monthly payment that does not have to be returned while you are living in the house. Many seniors depend upon reverse mortgages as an extra source of income. If you do not need extra income on a regular basis, you can get a reverse mortgage in the form of a credit line, which allows you to withdraw money against your equity whenever you need it. Again, you are not required to repay the loan until you no longer occupy the house.

A REVERSE MORTGAGE DOES NOT REQUIRE A CREDIT CHECK

Home equity loans require the loan applicant to meet certain credit and income criteria. The reason for this is that the loan must be paid back right away. With reverse mortgages, there are no such requirements. The loan is granted as part of a governmental program and is most often paid back by the homeowner’s heirs after her death. For these reasons, credit checks are neither relevant nor necessary. In order to qualify, you simply need to be over the age of 62 and own your own home.

A REVERSE MORTGAGE HELPS YOUR FINANCES

Home equity loans add to the amount of debt you carry and become another financial burden. Reverse mortgages add to your assets. The debt is generally paid off by your heirs selling the house after your death; if the house sells for more than the loan amount, your heirs are free to keep the profits. If they would prefer, they can also refinance the mortgage and keep the house. Either way, your heirs are likely to benefit from this investment.

Related posts

1. How Does A Reverse Mortgage Work?
2. Can I Use the Funds Received From a Reverse Mortgage Any Way I Choose?
3. Will I Still Continue to Own My Home If I Take Out a Reverse Mortgage?
4. What Happens to My Home When I Die If I Have a Reverse Mortgage?
5. Who Owns My House If I Have a Reverse Mortgage?

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