Comparing a Home Equity Loan and a Reverse Mortgage
July 27th, 2010
July 27th, 2010
Which is best for you - a home equity loan or a reverse mortgage? They both provide money for you now. They both use the equity in your home as the source for the funds. So what are the differences?
Home Equity Loan
The loan fees are normally lower for a home equity loan than for a reverse mortgage and the interest paid is most often tax-deductible. It is also highly likely that you'll qualify for a higher loan amount. You will need to start making monthly payments immediately with the goal of paying the amount back to the bank. This type of loan is often used if you plan to move in the near future or when there is a need to access funds short-term. If you default on a home equity loan, you could default and lose your home.
A reverse mortgage is basically that - reverse, or opposite, from a standard loan. Your debt balance increases over time while you decrease your equity and create a potentially lower value of our estate. Typically the closing costs for a reverse mortgage are higher than that of a home equity loan, and interest percentage is usually higher as well. There are no monthly payments required, because the loan is paid off after your death. Therefore, you do not face defaulting on the loan or losing your home.
These are the major differences between the two opportunities to use the equity in your home to provide funds. Discuss your situation with your financial advisor and a reverse mortgage specialist so you can make the proper decision that best meets your needs.
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