If you are over 60 years of age and are considering borrowing against your home’s equity, what might be the best option for you? Would a reverse mortgage or a home equity loan be more beneficial for you? When weighing your options, there are many factors to take into account, including the differences within both methods.
Reverse Mortgage
A reverse mortgage can be costly but does not have to be repaid until your home is sold. This gives the user the luxury of being able to maintain a long-term source of income.
Home Equity Loan
A home equity loan is appropriate for an individual who is interested in short-term cash they can repay, keeping more money in their pockets for the time being.
What Is The Difference Between The Two?
As mentioned in the given descriptions, the most differentiating factor between a reverse mortgage and a home equity loan is time itself. In other words, a reverse mortgage is for an individual who needs a long-term and reliable source of income, compared to a home equity loan which is usually used for a shorter period of time and paid off quicker. For seniors, in this case, a reverse mortgage is much more favourable as they are not required to pay their debt off until they sell their home. As long as they own the home, borrowers can receive constant instalments of money until they sell their home, giving them a consistent source of income. However, the downside of reverse mortgages includes closing costs, monthly insurance fees from approximately $25 to $35, and a higher interest rate compared to a home equity loan. While home equity loans have their own independent fixed rates, higher rates and costs are accumulated over time with a reverse mortgage, proving to be a costlier but more lenient option for those in need.
Which One Should I Choose?
If you are over the age of 60 and own your home, a reverse mortgage may more or less be the best option for you. It gives you the flexibility to keep a stable and long-term source of income, allowing you to also pay your owed money along with the equity of your house. If a minor home renovation or debt consolidation is on your plate, a short term payment from a home equity loan can be extremely helpful in your scenario. For any questions, concerns or inquiries about home equity loans and reverse mortgage loans, please contact us.