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Reverse Mortgages versus Home Equity Loans
By: Christine Harrell
There are plenty of benefits to the retirement years, one of which is the ability to
finally enjoy the time that was so limited during the years of building a career and
raising a family. The catch 22 is that along with the extra time retirement offers
there is often less money with which to enjoy that time. One of the largest sources
of available funds to tap into during the retirement years is home equity which can be
accessed and enjoyed thanks to reverse mortgages.
How reverse mortgages (RMs) differ from home equity loans. RMs are one of the fastest
growing home finance products today and with good reason. Unlike home equity loans,
mortgages of this type don't require the homeowner to pay on a new loan. That's right,
no payments ever. RMs are only available to those aged 62 and over and become payable
only when the homeowner permanently leaves the residence. This would occur if the home
was sold, or upon the death of the homeowners.
With a traditional home equity loan, the borrower goes through the entire home loan process
including getting a credit check and signing on the dotted line to repay a large sum of
borrowed cash. Reverse mortgages are just the opposite. There's no traditional credit check
or repayments with RMs, because homeowners are using the equity they have already accumulated.
Tax implications of reverse mortgages and home equity loans:
Another reason why the number of RMs increased more than five-fold between 2001 and 2005 is that
homeowners aren't required to pay taxes on the money they receive from these mortgages. Money
disbursed through reverse mortgages are equity as opposed to income, meaning that RMs don't have
any impact of the amount of social security a retiree will receive. They have no impact on Social
Security or Medicare. They also provide an excellent source of tax-free money.
Accessing cash: reverse mortgages vs. home equity loans:
With a home equity loan, homeowners generally have access to a percentage of their home's appraised
value less the balance owed on the existing mortgage. A home equity loan may initially offer a higher
percentage of the home's value, but only because payments are made each month that keep the loan balance level.
Reverse mortgages work differently. There are no monthly payments of any kind, as long as you
continue to live in the home. Interest that accrues is deferred. A Reverse Mortgage line of credit
actually earns interest on the unused portion of funds. The current yield on the FHA monthly program
is about 6.5%. With RMs, homeowners can get more spending money over time than with traditional home
equity loans.
Reverse Mortgages Facts
Types of Reverse Mortgages: (click on type to learn more)
Questions? Review our Reverse Mortgage Frequently Asked Questions
Ready To Act?
Apply Now
and choose Reverse Mortgage as Purpose of Loan.
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