Home Equity

Reverse Mortgage vs. HELOC – Which one should you choose?

Reverse Mortgage vs. HELOC – Which one Should you Choose?

Baby boomers are entering their senior years and because of the recent economic downturn, many are looking for options to generate some cash. If you looking into getting a mortgage,   before you sign on the dotted line, you should understand the options available to you.

If you own your home outright or you are close to 100% equity, you may be interested in a reverse mortgage or a HELOC (Home Equity Line of Credit). Though both are based on the equity in your home, they are drastically different. With a HELOC, your equity is used as insurance in case you default on the loan, but it is not depleted. With a reverse mortgage, you are actually receiving payments out of your equity and this equity will continue to decrease the longer you receive payments.

Some facts about reverse mortgages:

  • You receive payments from your lender either monthly, in a lump sum, as a line of credit, or a combination of the three.
  • You are not applying for a traditional mortgage, rather for eligibility. The amount to which you are eligible is based on your age, the interest rate and your equity in the home.
  • Upon application, you are not required to show proof of income or excellent credit to be approved.
  • You are not at risk of foreclosure
  • You must be age 62 or older
  • Closing costs are usually higher than traditional mortgages but they can be rolled into the mortgage.
  • The more you money you receive the more your equity in your home is depleted

Note: Though you are receiving payments, you are still responsible for your property taxes, house insurance and maintenance and repairs.

Some facts about a HELOC:

A HELOC is similar to a traditional mortgage and it may be a better choice for you if you are under the age requirement for a reverse mortgage or you have excellent credit and enough income to cover the monthly payment.

  • Closing costs are generally low
  • The interest is deductible
  • No age restrictions
  • You can foreclose if you fail to make payments
  • Your debt-to-income ratio is calculated and your credit score is assessed during the approval process.

Still wondering which one is right for you? There are many variables to consider when choosing between a reverse mortgage and a HELOC. Our experienced reverse mortgage consultants have helped thousands of concerned homeowners with this exact decision. Contact us at 888-790-0292 and let our decades of experience go to work for you.