A Detailed Comparison between Reverse Mortgage vs. HELOC

Nov 08, 2023 By Susan Kelly

You might have heard the name mortgage a lot of times in your life. Especially if you are someone who is looking forward to getting themselves a home, you might know about mortgages and how they work. There are a lot of different kinds of mortgages that are present in the market. However, the selection of these types depends on the requirements and what type of house you are looking for.

Today, in this article, we will be discussing the two different types of mortgages: the reverse mortgage and the HELOC. Here, you will see a detailed comparison between reverse mortgages vs. HELOCs. This will clear all your confusion, and you will find something that works best for you. So, let's get into the article and have a look at it.

Everything About Reverse Mortgage:

The first thing between reverse mortgage vs. HELOC we will be discussing is reverse mortgage. The reverse mortgage means that it works in the opposite way of a traditional mortgage. This means you won't have to pay the amount each month. Instead, you will receive a check every month. You won't have to pay the amount for the home until and unless you don't sell it or you don't die.

Now, you might think this is a very beneficial home loan, and everyone can start using it. But let us burst your bubble and tell you that this is not everyone. This is only for people who are above the age of 60. These are for people who are on their retirement plans but still need a home to live in.

When it comes to Reverse Mortgage, there are different kinds of reverse mortgages as well. Following are some of the most common types of reverse mortgages.

Single Purpose Mortgage:

This means that the check or the money you are receiving every month will be restricted. There are only a few specific things that you can do with that money.

Home Equity Conversion Mortgages:

Another type of reverse mortgage is the one that the federal government insures, and it is considered one of the safest.

Proprietary Reverse Mortgage:

The last type of reverse mortgage that people commonly use is this one where the people can have a higher limit on the loans as compared to government-backed loans.

Pros of Reverse Mortgage:

Now that you know what is a reverse mortgage you should also ne know some of the significant benefits you can have when it comes to using this mortgage type.

  • There are no immediate payments required.
  • There are different options for receiving the funds. You can get them as monthly payments or as a lump sum.
  • Allows the spouse to remain in the house for 12 months after you go to a health care center or die instead of selling it immediately.

Cons of Reverse Mortgage:

With the excellent benefits, there are some cons that a person might face when it comes to the reverse mortgage. Following are some of those cons.

  • It can add to your debt.
  • It can create complications when it comes to passing down the house.
  • The high closing cost can be very high sometimes.
  • There is a potential for being scammed.
  • If you fail to pay the property taxes, then you can surely lose your home.

Everything About HELOC:

Another type of mortgage that you can learn is HELOC. HELOC basically stands for Home Equity Line of Credit. This is very similar to the home equity mortgage or loan. However, there are some key differences when it comes to it. The first significant difference in this type of mortgage is the line of credit instead of getting a total lump sum. The next thing is that you can only draw the funds as you need them during a specific period; that is called the "draw period." This period lasts for about ten years.

Another thing you should know about HELOC is that they have variable interest rates. This means that you won't get a fixed rate when it comes to interest. It will fluctuate according to the market conditions. This means every time you pay back the money, you will have to adjust the interest according to the market rates that are going on at that time.

Pros of HELOC:

Now that you know the main difference between reverse mortgage vs. HELOC, let's have a quick look at some of the pros:

  • It gives you the ability to make low payments that will only cover the interest charges.
  • You can borrow as much money as you want.
  • The introductory rates of this mortgage are meager, and the potential interest rate is also low.
  • There are no closing costs.
  • Some lenders even offer fixed rates instead of rising rates.

Cons of HELOC:

Mentioned below are some disadvantages that come with this type of mortgage.

  • Variable Rates can cause a lot of problems when it comes to making a budget for the month.
  • Some lenders can also charge for the HELOC annual fees
  • There is still a potential that you will have to lose your home.

Reverse Mortgage vs. HELOC – Which one is Best?

Now that you know the significant differences between Reverse Mortgage vs. HELOC, let us tell you which one is better for you. If you are older than 60 years, then the reverse mortgage can be the perfect option for you. This is because you don't have to pay any kind of money while you are living and still you will have a proper house to live in. However, if you are someone who needs money but doesn't know much you need, then you can go for the HELOC. The only disadvantage you can get here is that you will have to adjust to the changes in the interest according to the market values.

Conclusion:

There are a lot of different types of mortgages that you can find in the market. However, the type of mortgage will be based on your requirements. In this article, we discussed the reverse mortgage vs. HELOC and which one was better for you. Hence, we hope this article was beneficial for learning more about each of those.

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