They cost little or nothing to set up, and the interest rates can be very low. Solution: Single-purpose reverse mortgage.Īlso often called "property-tax deferral" programs and "deferred payment loans", these loans are offered by state and local government agencies and nonprofit organizations. Property taxes have increased, the house needs work and the money just isn't there. For some seniors, just maintaining a home is a real challenge. Situation: You are strapped for cash, and need money to pay for property taxes and/or home maintenance. The cost to set one up is minimal, and you pay no interest unless you actually use the money.
As long as you have decent credit and sufficient income to qualify, a HELOC is a good choice. Solution: Home equity line of credit (HELOC). You may have regular income from investments, Social Security and/or pensions, but would like access to cash if something expensive comes up. Situation: You are financially comfortable and have a solid regular income, but would like some extra cash in case of an emergency. Remember, you must be 62 years old, or approaching that age, to be eligible for a reverse mortgage or HECM.
However, let's examine a few situations to help determine if a home equity loan, loan of credit or a reverse mortgage is right for you. To get a more thorough understanding of the advantages, drawbacks and risks of using one of these to tap the equity in your home, you should read our Comprehensive Guide to Home Equity Conversion Mortgages and reverse mortgages. Reverse Mortgages (RM) and Home Equity Conversion Mortgages (HECM) can be complex. Finally, home equity lines of credit cost a lot less to obtain than most reverse mortgages. Of course, one requires payments while the other does not. The main differences between the two are that you need good credit and sufficient regular income to qualify for a home equity loan, while there is no income or credit qualification for a reverse mortgage. Home equity loans allow you to take a lump sum or a line of credit, and so do reverse mortgages. Home equity loans and reverse mortgages work very differently, but in the end accomplish the same thing - converting older borrowers' home equity that can't be spent into cash that can.
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