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Home Equity Loans Vs. Reverse Mortgages

[Dec 11, 2009.]


If you are over 62 years old and considering a reverse mortgage, it is very important to consider all of your options first. One alternative to consider is a home equity loan. Following are the basic facts of each of these two home loans. A reverse mortgage is a mortgage loan of last resort.  If a home equity loan will satisfy your needs, it is likely to be the cheaper option.

Which Home Loan Will Have Easier Qualifications?

  • Even if you own your home free and clear, a typical home equity loan lender will need to check your credit report. A reverse mortgage does not consider your credit score or your debts.

  • If you have a balance on a home equity loan, you will need to make monthly mortgage payments. You will need to prove to the lender that you have enough income to make those payments before you will be approved for the loan. Reverse mortgages do not have monthly mortgage payments and so no income is necessary to qualify.

  • Neither loan is likely to require significant liquid assets in reserve.

  • Home equity loans might be easier on the property than a reverse mortgage. Since there is no credit, income, or liquid asset requirements for a reverse mortgage, the lender will look carefully at the property type and condition.

Which Home Loan Will Be More Expensive?

Since no one knows what interest rates will do over the next thirty years, there is no way to know for sure which home loan option is cheapest. Home equity loans are cheap loans up front. Reverse mortgage loans have a lot of up front charges which make them poor choices for short term fixes. Both the home equity lender and the reverse mortgage lender are required to give you cost disclosures.  Read and compare those disclosures carefully. Chances are the reverse mortgage will be much more expensive.

What If You Need A Fast Loan?

Home equity loans will likely be the fast loan choice. If you are having an urgent need for cash, getting a home equity loan will usually be much faster than getting a reverse mortgage. You will also have on-demand access to the loan proceeds in the form of a visa card or check book. If you have your checking account with the bank that gives you the home equity loan, you may be able to transfer funds online. The reverse mortgage loan process can be very time consuming.

Which Home Loan Best Meets Your Needs?

If you have good credit and verifiable income, if you need the money fast, and if you are looking for cheap loans, a home equity loan is your best choice. If you cannot qualify for a traditional mortgage loan, and your needs are urgent enough to pay the high up front costs, a reverse mortgage may be the only solution.


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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