Some people may prefer the HOME EQUITY LOAN instead of a REVERSE MORTGAGE; let’s look at each and consider which may be a better option for each individual situation.
HOME EQUITY LINE OF CREDIT:
Also referred to as a SECOND MORTGAGE will have very strict guidelines for qualifications for income and creditworthiness. A traditional loan requires monthly payments to repay the amount currently owed on the mortgage.
REVERSE MORTGAGE is designed for people that have owned the home for a long period of time; consequently they have equity built up in the home. A REVERSE MORTGAGE does not base eligibility on a credit score or income ability, With a REVERSE MORTGAG the amount that can be borrowed is determined by an FHA formula that considers age (must be at least 62 yrs), the current interest rate, and the appraised value of the home. Another difference with REVERSE MORTGAGE, the loan is not repaid until the death of the homeowners, or the homeowners vacate/sell the property, upon sale of the property, equity invested in the property should cover the reverse mortgage and any remaining equity is then given to the owner. Upon death of the homeowner, and sale of property, the REVERSE MORTGAGE is settled and remaining equity is turned over to the estate of the deceased homeowner. With a REVERSE MORTGAGE the home needs to either be owned free and clear or the REVERSE MORTAGE will pay off completely the balance owed on the original mortgage.
With either the HOME EQUITY LINE OF CREDIT LOAN or REVERSE MORTAGE, the homeowner must keep current homeowners insurance, pay the property/real estate taxes and maintain the home in good condition.
Which will be the best option for you?