What is Home Equity?
Home equity is the difference between what is owed on the mortgage and what the home is currently worth. For example, if $100,000 is owed on the mortgage and the home is worth $250,000, this means there is $150,000 of home equity.
Equity can grow in two ways: 1) the amount of equity in the home will rise as the mortgage is paid down and 2) the amount of equity will increase if the value of the home goes up.
It is important to note that the equity in the home can also decrease. The home’s value may fall at a rate faster than the pace at which the mortgage’s principal balance is being paid down.
How Can You Access Your Home Equity?
For qualified homeowners 62 and older, a reverse mortgage may be the answer. A reverse mortgage loan allows borrowers to access a portion of their home equity as cash which can be used to help with everyday daily living expenses. Reverse mortgage borrowers do not have to repay the loan as long as they live in the home as their primary residence, pay property taxes and insurance, and maintain the property.3
Borrowers can decide how they receive the available funds from their reverse mortgage in a lump sum4, monthly installments, or a line of credit.5 The lump-sum payment can be a good option if you want to pay down other debts or make improvements to your home. Receiving monthly installments can help cover ongoing expenses and alleviate stress regarding monthly cash flow. A line of credit may make sense for an emergency fund because it is available anytime you need it. An added benefit of the line of credit is that if your home value increases over time, so will the amount available to you.6
Are you living on a fixed income and want to know if you can benefit from a reverse mortgage? Call (800) 976-6211 to speak with a licensed reverse mortgage specialist to find out how much you may qualify for.
Disclosures:
1 https://www.thebalance.com/u-s-inflation-rate-history-by-year-and-forecast-3306093
2 Current US Inflation Rates: 2000-2022 | US Inflation Calculator
3 You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.
4 Only available on fixed rate reverse mortgage.
5 The funds available to the borrower may be restricted for the first 12 months after loan closing, due to HECM reverse mortgage requirements. In addition, the borrower may need to set aside additional funds from the loan proceeds to pay for taxes and insurance.
6 The reverse mortgage loan balance grows at the same rate as the available line of credit. Line of credit growth occurs and is only a benefit when a portion of the line of credit is not used. The unused line of credit grows over time and more funds become available during the life of the loan.