As a senior have you ever pondered, where can you get an extra cash if it is a must? Have you thought both the reverse mortgage loan and the home equity loan? Have you seen it difficult to judge, which one is better?
Of course a personal situation will dictate, which loan alternative to use. This article tries to describe the benefits and features of both loan types and leaves the decision making to the reader. If the financial situation is clear, it can be extremely easy to make a decision.
1. The Features And Benefits Of The Reverse Mortgage Loan.
The reverse mortgage uses the home equity as a guarantee and as a source of the money. It is taken against the equity of the home and no other guarantees are needed. A borrower has to take a so called mortgage insurance, which makes it sure for the lender, that he will get the money, interests and costs nack, when the running time is finished.
It also guarantees, that a borrower cannot spend his or her other assets to pay the reverse loan. The back payment happens either from the selling price of the home or from that and partly from the mortgage insurance.
The Different Forms Of The Loan.
The need of the borrower determines, how the lender will pay to the borrower. The alternatives are lump sum, monthly payments, a credit line and a combination from these. In most cases the payments are tax free, because the borrower has already once paid the taxes. A borrower makes it wise, if he talks with an expert, a reverse mortgage counselor about the details in his state.
The Reverse Mortgage Payment Is Pure Cash Without Monthly Back Payments.
This is most propably the biggest benefit. A senior gets extra cash and there is no backpayments. The loan capital, interests and costs will be paid back, when the running time is out. This happens, when a senior moves permanently away, sell the home or pass away. If he had a usual mortgage still unpaid, he has to pay that away with the reverse loan.
The reverse mortgage loan is ideal to the seniors, who are cash poor but equity rich, i.e. who has their homes as the only sources of money.
2. The Basics Of The Home Equity Loan.
The home equity loan, also called a second mortgage loan, is a loan, which is taken against the home equity and will be paid back after the fixed time with the interests. Or if the need of the money is not known a borrower can get a line of credit with a maximum amount and he will use as much as is needed. So the home equity is a collateral and will guarantee, that in the worst case the home will be sold, if a borrower cannot pay to the lender.
In both the reverse mortgage and the home equity loan, the home value is calculated following the present market parice, so called appraised value. Because the home prices tend to increase during a long period of time, it leaves more space for additional loans.
The home equity loan lender examines the incomes, credit score, other debts and these have influences over the loan terms.
The reverse loan borrower can qualify, if he or she is at least 62 years old, owns a home, where he lives permanently and where he has equity. The loan eats the equity little by little, but the borrower has not pay anything back during the running time. And when the home prices will increase a borrower can increase the loan by refinancing it.
Very clearly the need of the borrower will determine, which loan type fits best to a senior. A reverse mortgage without monthly payments or a home equity with a fixed back payment timing or credit line. When the type has been chosen, it is wise to meet a counselor and to make in detail calculations for the comparison.
More about this topic: Reverse Mortgage Counseling