What the Difference Between a Reverse Mortgage and a Home Equity Loan?
Reverse Mortgage vs. Home Equity Loan
The reverse mortgage program is not as “new” as people might think. While it wasn’t as well known or sought after as today the first program of its kind began in the 1960’s where it remained in relative obscurity until the Department of Housing and Urban Development introduced the federally-insured Home Equity Conversion Program in 1990.The reverse mortgage continued to gain attention in 1996, when Fannie Mae launched the Home Keeper.
A reverse mortgage still continues to be a source of cash flow for seniors looking to supplement their retirement or add on to their fixed income. As a retirement planning tool, the reverse mortgage program offers a line of credit option, which allows the borrower(s) control over how much (and when) the funds are used.
So what makes a reverse mortgage different and, essentially, more beneficial to retiring homeowners than a home equity loan?
A home equity loan does require monthly payments while a reverse mortgage does not. For example, if you are looking for a source of increased cash flow that will allow you to cover your debt and (maybe) take a vacation or two, then a home equity loan is not for you. It will further add to your debt and stop you from enjoying retirement as you worry about how you will make payments on this extra monthly expense, which must be paid at the end of a fixed period.
When a reverse mortgage becomes due, your heirs aren’t financially responsible for repayment. For example, if you pass away, but took out a home equity loan, the loan transfers to your heirs who will have to pay back the loan, plus interest. With a reverse mortgage, when the loan becomes due, the primary used for the reverse mortgage is sold and the equity is used to pay off all the fees and the lender. Any difference is given to the heirs.
As a non-recourse loan, you never owe more than the value of your home with a reverse mortgage. A home equity loan can become difficult to pay, especially as the interest rises. With a reverse mortgage, even if the loan surpasses the value of your home, the borrower is not responsible for repaying the loan in full. You aren’t financially responsible for the difference, neither are your heirs.
At PS Financial Services, a reverse mortgage company in Florida, we offer all the reverse mortgage options available for a retiring or retired senior homeowner. Make sure your retirement is liberating, not suffocating. Give us a call at (888) 845-6630 or send us an email at info@PSReverseMortgage.com. We do not pressure those who inquire.