REVERSE MORTGAGES, HOME EQUITY LOANS and HELOCs

There are several ways in which you can tap into your home’s equity – home equity loans, reverse mortgages, and home equity lines of credit (HELOCs). Before deciding whether any of these options are for you, let’s compare some of the differences, as well as the terms of repayment and disbursement.

REVERSE MORTGAGES

·       A reverse mortgage is a loan that is available, with age restrictions, for older adults. In most cases a borrower must be 62+ years old, although there are some lenders that may lower the age to 55 years and older.

·       This is a good option for qualified borrowers who desire to supplement their income. The funds are paid out as a lump sum, a line of credit or fixed monthly payments.

·       Because the borrower is borrowing against their home, substantial home equity (typically at least 50% of the home’s value) is necessary to take advantage of the loan.

·       The property must be where you live the majority of your time.

·       Homeowners insurance and taxes must still be paid.

·       Reverse mortgages are nonrecourse loans – you and your heirs will not be held liable for costs that end up exceeding the value of your home.

·       Most reverse mortgage loans are not repaid by the borrower. Instead, when the borrower moves or dies, the borrower’s heirs sell the property to pay off the loan. The borrower (or their estate) gets any excess proceeds from the sale. Dock David Treece FORBES Advisor Contributor

·       Properties that are eligible include: single-family homes, multi-unit properties (up to 4 units), manufactured homes built after June 15, 1976, and condos or townhomes.

·       Most reverse mortgages are government-insured loans and will have rules and criteria that a conventional loan will not have.

·       Keep in mind that a reverse mortgage will increase your debt and reduce your home’s equity (interest is added to the balance each month).

HOME EQUITY LOANS

·       Home equity loans have the fewest restrictions yet may be the costliest of the three options mentioned in this article.

·       These loans are known as a ‘second mortgage’ which enables you to borrow against your home’s equity (usually between 15% - 20% is the amount of equity to qualify).

·       This loan will be a monthly payment in addition to your regular mortgage payment.

·       The funds are paid in a single lump sum.

·       There are no age restrictions.

·       If you have a home renovation project and know what your upfront costs will be, this may be the best option for you.

·       Have fixed interest rates.

HOME EQUITY LINE OF CREDIT (HELOC)

·       A HELOC is a revolving line of credit that enables you to borrow (withdraw) up to your established credit limit as needed.

·       HELOCs offer flexibility, affording you the choice to withdraw as necessary.

·       While the Reverse Mortgages and Home Equity Loans have closing costs, some HELOC options have no closing costs.

·       There are no age restrictions.

·       Usually require 15% - 20% equity in your home.

·       Have adjustable interest rates.

·       HELOCs may be a good choice when you are uncertain how much money you need and prefer not to commit to a specified debt amount.

Reverse mortgages, HELOCs, and home equity loans offer viable financial options for homeowners seeking additional funds. However, the best choice for you depends on your current financial circumstances and the intended use of the money. Consider factors such as your available equity, preferred method of fund disbursement, and repayment preferences when making your decision. Consulting with a loan counselor is advisable to ensure you make an informed choice.

Sandi Downing Real Estate/Keller Williams

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