With the many commercials on television about accessing home equity. Questions are bound to come up about the legitimacy, requirements and cost of the various loan types.
This article will address the differences amongst the most common home equity borrowing options. Although each loan type relates to borrowing home equity. There are important differences to consider.
Home Equity Loan
A home equity loan lets the borrower draw a specific amount of money based on the value of the home. That amount will be repaid through fixed monthly payments and interest on the loan amount one accrues during the life of the loan.
Borrowers are also required to continue paying taxes, insurance and other necessary costs. The largest amount borrowers may receive through a home equity loan is generally capped at 85% of their home’s value.
Several more borrowing factors include credit worthiness, market value of the home, and income. Borrowers may shop around to insure they receive the best rate possible.
Home Equity Line of Credit (HELOC)
A similar option is a home equity line of credit (HELOC). This allows borrowers to call upon the line of credit as necessary. They only pay interest on the amount of credit that they have borrowed.
The largest amount that one can borrow with a home equity line of credit is like the amount that one may borrow with a home equity loan.
Reverse Mortgage Loan
A reverse mortgage loan allows homeowners to tap into the equity of their home without making any further mortgage payments. Also, no interest payments while still owning the home outright.
For as long as they live in the home. Borrowers or the estate are required to repay the loan when the borrower passes away or is no longer living in the home full time. Borrowers are also required to continue paying insurance, taxes and any other required payments.
As well as keep up the home in the same condition it was in when the loan originated. To be eligible for a reverse mortgage loan borrowers should be at least 62 years old and have significant equity in their home.
The funds a borrower receives from a reverse mortgage loan may be received in a variety of ways. Including through monthly payments, a lump sum, or a line of credit. These options make it easier for borrowers to access their funds in a way that best suits their needs.
Borrows can use funds from a home equity loan and reverse mortgage loan however they choose. Whether that’s for a vacation, college tuition for a child or grandchild, home repairs/redesign or medical expenses. People are encouraged to speak with a financial advisor before borrowing from the equity in their home.
If you or someone you know is 62 years old or older and is considering a reverse mortgage loan, have them contact a reverse mortgage advisor at 800-976-6211.