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Home Equity Loans Vs. Reverse Mortgages

[Jun 25, 2010.]

 

Basic Features Of Home Equity Loans


  • Traditional home equity loans are cheap loans. The are also usually very quick loans. If you have significant equity in your home and would like access to it at will, traditional home equity loans are a great choice.

  • Access your equity using a checkbook, a Visa debit card, or make a transfer to your checking account online. When something comes up and you need a fast remedy, home equity loans provide methods of access that fit easily into everyday living.

  • Home equity loans can be either fixed interest rate second mortgages or, adjustable rate lines of credit (HELOC). If you are most interested in repaying the loan within a specific term, a fixed second mortgage would be best. If you need the lowest possible payment, lines of credit usually have lower starting interest rates and interest only monthly payments. Compare second mortgages vs. HELOC.

  • Traditional loan approval guidelines apply to home equity loans. You will need to prove that you have a stable income that is sufficient to make regular payments. You will also need to have a minimum credit score and acceptable credit history. The better your credit score and the more equity you have in your home, the better your interest rate is likely to be.


How Does A Reverse Mortgage Line Of Credit Compare?

  • Reverse mortgages are loans of last resort. A reverse mortgage line of credit is likely to be much more expensive than a traditional home equity loan. They are not cheap loans. There are up front fees such as mortgage insurance and origination charges. Interest on the balance can compound year after year because there is no need to make a monthly payment.

  • If you are not able to qualify for a traditional home equity loan and are seriously in need of money, a reverse mortgage could be one answer to your problems. How much you can borrow is based on your age, the current interest rate, and the amount of equity in the home. Traditional income and credit guidelines do not apply to reverse mortgages.

  • Reverse mortgages provide cash by making the equity in the home available. There are no monthly payments required and as long as the terms of the loan are met, you can live in the home for life. You must be at least 62 years old, own the home free and clear (or have a small mortgage balance), and intend to occupy the home as your primary residence.

  • Reverse mortgage lines of credit can normally be accessed in the same ways as traditional home equity loans. The homes value is very carefully scrutinized and the process can take time. Reverse mortgages are not quick loans.

 

About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.

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