Retirement is a wonderful part of life for many seniors, yet it can also be a time of life when they worry about money. If you struggle with having enough money for the things you need, you could look into reverse mortgages and home equity loans.
As you examine both options, you may find that a reverse mortgage is a better option for most seniors.
The Definition of Each
Most people are familiar with home equity loans, yet many people are not yet familiar with reverse mortgages. Both options offer a way for you to tap into equity you have in the home you own, but both options work in very different ways.
A home equity loan is like any other type of loan. You borrow a certain amount of money and must repay it with interest. Your lender might set it up for you to repay the loan in 10 or 15 years, but you must repay it.
A reverse mortgage works exactly opposite. Your lender sends you payments each month, which come from the equity in your home, and you do not make payments on the money you borrow. In fact, you will only repay the loan when you move out of the house or sell it. Until that point, you will never have to repay any of the money you borrow from the equity in your home.
The Requirements of Each
There are two main reasons people choose home equity loans instead of reverse mortgages. The first is that many people do not understand the full benefits offered through reverse mortgages, and the second is that some people do not meet the age requirement for reverse mortgages.
People only qualify for reverse mortgages if they are at least 62 years old. If you are younger than this, your only option to get cash might be through a home equity loan. If you are at least 62, consider looking into a reverse mortgage.
The other key requirement of a reverse mortgage is you must have a lot of equity in your house. If you own the house outright, you should have no problem qualifying. You can also qualify if you owe very little on the house.
Why a Reverse Mortgage Is Better
After understanding the basic components of each program, you should realize that reverse mortgages offer benefits that home equity loans do not offer.
The main benefit is that you do not have to make payments. If you do not currently have enough money each month to pay your bills, imagine having an income stream coming in each month from your reverse mortgage. Imagine too, not having to make payments on this income stream. It is the perfect solution for seniors who do not have enough income to live off each month.
Secondly, your credit score will not impact your ability to qualify for a reverse mortgage. To qualify for a home equity loan, your lender will need to see a good credit score. If your credit is less than perfect, this is not likely to prevent the lender from approving your loan.
Another key benefit is that the income you receive from the reverse mortgage is tax-free income. In other words, you will not incur taxes that you must pay each year on the money you receive.
If you worry each month about your bills and having enough money to survive, now might be a good time to consider taking a reverse mortgage. You can learn more about reverse mortgages by contacting Retirement Funding Solutions. We offer several locations, convenient hours, and information about your unique financial situation.