What Is a Reverse Mortgage? How These Loans Stack Up Against Other Home Equity Loans

What is a reverse mortgage? These days, this question is one that many consumers find themselves asking. In short, a reverse mortgage is a loan that allows senior homeowners to borrow against their home equity. To qualify for a reverse mortgage, seniors must be at least 62 years old, reside in an approved property, and own their home outright or have a small remaining mortgage balance. In addition to asking, “What is a reverse mortgage?” many seniors are wondering how these loans differ from other home equity loans. Before choosing a specific loan type, this is an important thing to understand. rnWhat Is a Reverse Mortgage? How Does This Loan Compare to Other Loans? Seniors who find themselves wondering what is a reverse mortgage should know that these loans are very different from other home equity loans. With a reverse mortgage, borrowers are converting a portion of their equity into cash. Unlike other home equity loans, borrowers will not repay the loan until they pass away, sell their home, or move from the residence. Another difference is that reverse mortgages are not given based on credit or income. Borrowers qualify for these loans based on their age, property type, and amount of equity. Home equity lines of credit (HELOCs) and home equity loans are significantly different than reverse mortgages. Both of these loans allow consumers to borrow against the value of their home. With a HELOC, a borrower will be opening a line of credit. A home equity loan allows borrowers to receive their loan in one lump sum. These loans are given based on the value of one’s home, income, credit history, and amount of equity. Unlike reverse mortgages, borrowers will be required to make monthly payments to their lender. rnWhen a Reverse Mortgage Is the Best Loan for Seniors After answering the question, what is a reverse mortgage, many consumers are left wondering which loan would best suit their needs. A reverse mortgage is ideal for seniors who have a great deal of equity in their home but little cash on hand. Seniors with limited income, who do not want to make monthly payments on a new loan, might also benefit more from a reverse mortgage. This is especially true for seniors who do not meet the credit or income requirements to qualify for another type of loan. On the other hand, borrowers who can afford to make monthly payments on new loan might benefit more from a HELOC or home equity loan. This is also true for those who plan to move from their home in the next few years. Generally speaking, reverse mortgages are more expensive than conventional mortgage loans. Unless a borrower plans on staying in his or her home for many years, taking a reverse mortgage might not be worth the cost. In many cases, seniors asking, “What is a reverse mortgage?” are usually looking for a way to pay off their existing mortgage loan or increase their cash flow during retirement. If a person is hoping to convert a portion of their equity into cash, without having to repay their lender until their home is sold or vacated, a reverse mortgage might be the tool necessary to achieve those goals.