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Reverse Mortgage vs. Home Equity Loan

Owning a home is one of life’s greatest accomplishments. It is also the avenue used by many for financial freedom and success. As a homeowner continues to make monthly mortgage payments, they will see their home equity (value of their home minus their current mortgage) build. A home’s equity can be borrowed against enabling the borrower to access funds for many needs including college tuition, vehicle purchases or any other large ticket purchase. There are two main avenues used by homeowners to access their home’s equity in the form of a loan: Reverse mortgage and home equity loan.

A reverse mortgage is the process of borrowing a home’s equity however, the loan is only available to seniors aged 62 and over. A home equity loan is available to homeowners of all ages. When determining between a reverse mortgage and a home equity loan it’s important to consider the differences that each one offers and choose the best loan for your needs.

When choosing between a reverse mortgage and a home equity loan it’s important to understand the differences between the two loans. Home equity loans are distributed in a different manner than are reverse mortgages. Those who apply for and receive reverse mortgages can take money out in one lump sum or through monthly payments. This ensures that those who seek a reverse mortgage have ample access to the money needed, especially if performing expensive tasks and need the money at once. Homeowners who get a home equity loan will receive a credit card or a book of checks that you can use to withdraw funds against your home equity. When approved for a home equity loan you will receive a total loan amount and you can withdraw from that total through the credit card or checks as needed.

Another major difference between a reverse mortgage and a home equity loan is between the ways the loan is repaid. Reverse mortgages aren’t repaid with a monthly payment but rather when the mortgage ends, the payment is made in a balloon payment which indicates that it will be repaid in one lump sum. Usually, reverse mortgage are repaid when someone sells the home or moves away. A home equity loan is repaid through monthly payments that run throughout the life of the loan and continues until the loan is paid in full.

Reverse mortgages are often for larger loans than a home equity loan of credit, and those who need a large amount of funds for specific purposes who are 62-years-old and older may find that a reverse mortgage is the best choice. Home equity loans, however, often provide tax benefits. Those who choose a home equity loan will find that they can claim the interest paid on the loan as a tax deduction. If you have any questions or concerns regarding the legal implications and tax benefits or disadvantages of either loan, contact your tax attorney.

Reverse mortgages are often the largest asset that seniors own and can be a great way for seniors to tap into much needed funds. Whether it is medical expenses, preventing a stay in a nursing home, or much needed repairs or remodeling an existent home, a reverse mortgage can help seniors access the funds needed to make important life changing decisions.

Those who are younger and have built equity in their home may find that a home equity loan is the best way to access that earned money.

Tapping into your home’s equity through either a reverse mortgage or home equity line of credit offers many advantages and is a better option than taking out a conventional loan. Some reverse mortgages are paid off after a senior citizen passes away (taken out by the estate), ensuring that senior home owners can access their equity without needing to repay the loan in his or her lifetime.

If you are interested in obtaining either a reverse mortgage or home equity line of credit, make sure to perform your research and do your homework. Both have many benefits and advantages so take your time and choose the loan that best meets your financial needs.

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