Reverse Mortgage – Is It The Same as a Home Equity Loan? (Part 3 of 4)

Reverse Mortgage - Is It The Same as a Home Equity Loan? (Part 3)

Many senior citizens are wavering back and forth between home equity loans and reverse mortgages. Each loan has merit and should be considered according to each person's needs and goals. This article will explain some of the main differences between the two loans.

A home equity loan works very similar to a credit card. Based on the value of the home, the credit limit is set at a certain dollar amount. Homeowners can borrow amounts up to that limit and use the money to their heart's delight. Homeowners can take out a small amount or the entire amount, or anything in between. In contrast, a reverse mortgage is established so that it sends the same amount of money to the homeowner each month. The homeowner cannot get a lump sum or a smaller amount than the established figure.

Homeowners with a home equity loan are asked to make payments each month to repay the loan. Just like a credit card, the equity loan will ask for a minimum payment and the homeowner can pay more if they like. After the payment, the loan is reduced and the homeowner can tap into more money in much the same way that a credit card balance can be accessed after a payment. But a reverse mortgage does not require any payments from the homeowner. Instead, the bank sends a payment to the homeowner every month for a pre-determined length of time.

A home equity loan usually has a repayment period of ten to fifteen years. If the loan has not been repaid by the end of this time the homeowner must pay the balance at once or seek a new loan to pay this amount off. A reverse mortgage does not have to be paid until the home owner sells the home or passes away.

As you can see, there can be some real advantages to choosing a reverse mortgage over a home equity loan for certain individuals. The next installment will discuss a little known feature of the reverse mortgages.

If you missed Part 1 - The Essential Information or Part 2 - The Payments, be sure to check them out.

Visit our Reverse Mortgage page for additional program details.