Posted on: 02nd Jul, 2006 04:14am
If you have built up adequate equity in your home, then the first mortgage choice that comes up in your mind is a home equity line of credit. Lines of credit are usually used to meet your short-term cash requirements. But, in case you are 65 years of age or more, then you have another option open before you. You can use your home equity to obtain a reverse mortgage loan too. Now, in case both these options are available before you, which one is better? It depends upon your current financial situation as well as short-term and long-term requirements.
Line of credit offers you the chance to borrow money for a shorter period of time and you have to start repaying the loan with immediate effect. So it makes sense to go for a line of credit in case you need money to meet short-term needs and are in a position to repay it with immediate effect. But if you need cash for a longer period of time, then you have to make payments for a long time. If you are a senior living on fixed income, the extra payments for an extendable period of time may be too burdensome for you.
With a reverse mortgage loan, you don’t have to make any payment until you sell your house or decide to move to a new location. Here you don’t make any payment, instead payments are made to you in the form of monthly payments or lump sum amount but your equity in your home gets reduced. Reverse mortgage loans specifically made for the seniors who are not in a position to service an ordinary mortgage loan over a long period of time. In fact, a reverse mortgage loan is a nice plan to supplement your income on a continuing basis.
In both these types of loans, your home is used as the collateral. In case of a home equity line of credit, as long as you make payments, your home remains safe. But once you stop making payments, your lender can repossess your property. In case of a reverse mortgage loan, you can stay in the house until you sell the house or move out to a different place.
Both the reverse mortgage and the lines of credit are viable borrowing options. Before making a choice between these two options, you need to take into consideration your short-term and long-term financial objectives as well as your current financial situation. If you are looking for a predictable and conservative mortgage for now and for the future, then a reverse mortgage loan is perhaps a better choice for you than an equity line of credit.
Line of credit offers you the chance to borrow money for a shorter period of time and you have to start repaying the loan with immediate effect. So it makes sense to go for a line of credit in case you need money to meet short-term needs and are in a position to repay it with immediate effect. But if you need cash for a longer period of time, then you have to make payments for a long time. If you are a senior living on fixed income, the extra payments for an extendable period of time may be too burdensome for you.
With a reverse mortgage loan, you don’t have to make any payment until you sell your house or decide to move to a new location. Here you don’t make any payment, instead payments are made to you in the form of monthly payments or lump sum amount but your equity in your home gets reduced. Reverse mortgage loans specifically made for the seniors who are not in a position to service an ordinary mortgage loan over a long period of time. In fact, a reverse mortgage loan is a nice plan to supplement your income on a continuing basis.
How long can you stay in your home?
In both these types of loans, your home is used as the collateral. In case of a home equity line of credit, as long as you make payments, your home remains safe. But once you stop making payments, your lender can repossess your property. In case of a reverse mortgage loan, you can stay in the house until you sell the house or move out to a different place.
Which one is better?
Both the reverse mortgage and the lines of credit are viable borrowing options. Before making a choice between these two options, you need to take into consideration your short-term and long-term financial objectives as well as your current financial situation. If you are looking for a predictable and conservative mortgage for now and for the future, then a reverse mortgage loan is perhaps a better choice for you than an equity line of credit.
My mom, 79, owns her home free, the house worth $540,000. I recently visited her and was shocked to see the condition of her house. The roof leaks and there was the smell of the mold. Finally she admitted that she has outlived her assets, except for the social security and the pension. I suggested a reverse mortgage, but she says her banker recommends a home equity line of credit pay for the new roof and other repair work. She wants to stay in her house especially because she likes the neighborhood and the surrounding areas. What option do you think is better?
The bank would not do an equity line for my mother because her property is held partially in an irrevocable trust. Would this be the same for a reverse mortgage?
Sounds like an AB Trust ... I just closed a Reverse Mortgage for a homeowner in Los Angeles, with a Living Trust like that, so your Mother should be okay with it. Contact me at "RaymondDenton.com" and I'll review the parameters with you.
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