Reverse mortgage or home equity loan: Choose the one that’s right for you
by Kevin Craig
(Carson City, Nevada, United States)
Times are tough and under the present financial circumstances, it’s really difficult to fulfill your dream of buying your own home. However, you can always use a mortgage loan to achieve that special dream of yours. When it comes to mortgage repayment, there are several factors that go into it. In case you want to obtain a better interest rate, or get a different sort of mortgage, mortgage refinance may prove to be quite useful. When it comes to home equity loans and reverse mortgages, you need to know that although they function quite differently, eventually they do the same thing; changing borrower’s home equity that can’t be spent, into money than can. With home equity loans, you can obtain a line of credit or lump some amount of cash. Similar is the case with reverse mortgages.
The major difference between the two is that, while you require good credit and adequate regular earnings to become eligible for a home equity loan, there’s no income or credit requirement for a reverse mortgage. Again, the cost for home equity loans is much less than most reverse mortgages. In order to determine whether a reverse mortgage or a home equity loan is right for you, you need to consider a few situations.
Situation 1: You’re economically stable, but would like to have some surplus money in case of an emergency. You might have regular source of earnings like investments, pensions and social security, but would want to have money if something pricey turns up.
Solution: HELOC or home equity line of credit. If you have reasonable credit and adequate earnings to qualify, this is definitely a good option. The cost is negligible and you needn’t pay any interest unless you really use the funds.
Situation 2: You’re running short of money, and require cash to make payments for property taxes and home repairs. For some individuals, just refurbishing a home is a big challenge. The house needs repairs, property taxes have risen, and the cash just isn’t there.
Solution: One-purpose reverse mortgage. State and local government institutions and non-profit organizations offer this type of loans. They involve a minimum set up cost, and the rate of interest is very low. Reverse mortgages can only be used to pay taxes or for property maintenance, and are for low- to average-income seniors.
Situation 3: You have a limited fixed income and require more cash. You run short of money towards the end of every month, and you would need more fiscal security or perhaps a more comfortable way of life.
Solution: HECM or home equity conversion mortgage. Although this isn’t the most economical form of funding obtainable, if you don’t have cash to pay your bills, it might be the only financing option available to you. To qualify for this reverse mortgage you don’t even require good credit, and you may obtain monthly payments for a particular period of time, or you may go for lesser payments for a longer period of time. Senior HECM borrowers may receive higher monthly disbursements than younger borrowers.