Reverse Mortgages Versus Home Equity Loans

For decades, home ownership has been touted as one of the main ways individuals and families could build their wealth. When a person makes regular and timely mortgage payments they are taking the essential steps towards building home equity. As the equity builds, the homeowner will end up owning more of their property than their mortgage lender. When that happens, new lines of credit will become available to the homeowner and that is where both reverse mortgages and home equity loans come into play.

Both reverse mortgages and home equity loans will allow you to use your home as collateral when borrowing money, but there are some start differences between the two.

Reverse Mortgages:

A reverse mortgage is a type of loan that provides homeowners aged 62 and older a way to borrow money against the value of their home. The borrower has to treat the home in question as their primary residence in order to qualify for a reverse mortgage loan.

Additionally, the homeowner either needs to be fully paid into their mortgage or only have a couple of payments of the entire cycle remaining. With a reverse mortgage, the loan does not have to be paid off until the borrower moves, sells their home or dies (the estate will settle the debt on the loan).

Home Equity Loans

A home equity loan also uses one’s home as the primary collateral. However, this type of loan is not based on age or additional terms associated with a reverse mortgage. In this case, factors such as income, credit history and the value of your home are the main qualifications for securing this type of loan. With a home equity line of credit, the borrower will be responsible for paying it off via the contracted terms during their lifetime.

Although both types of loans can provide financial relief, it is important that before deciding between the two, that you take the time to chat with your financial adviser or a bank representative.  Regardless of whether you end up choosing to secure a reverse loan or a home equity loan, it is up to you to conduct your due diligence in order to make an educated decision.