Take advantage of your home equity
Most people think of two ways to use the built up equity in their home. Either by selling your home, or by taking out a home equity line of credit. But if you are over 55, there may be a better option: reverse mortgages.
Reverse Mortgage vs. HELOC
A HELOC requires you to start paying the interest accrued on the loan immediately after borrowing. A Reverse Mortgage never requires you to make payments (on the principal or interest) unless you move or sell your home. Its as simple as that.
So while a HELOC may be more beneficial for you if you only require a short-term loan, in the long-term, a reverse mortgage can provide the freedom you need with all of the financial stability of a standard HELOC.
Having a loan that doesn’t require payments can be just the thing you are looking for as you head into retirement. From not having to worry about loan repayments month by month, to being able to supplement your monthly income, a reverse mortgage is designed with you in mind.
What are the Borrowing Amounts?
HELOCs typically will allow up to 80% of the value of your home. But this takes into consideration your ability to repay the loan, and your rate may be strongly affected, especially as you head into retirement.
A Reverse mortgage, however, lets you borrow up to 55% of the value of your home. This helps to protect your home equity and ensures there is still value in your home after the loan is repaid.
Staying in your Home
So while HELOCs and Reverse Mortgages both use your home as collateral, only a Reverse Mortgage allows you to access your equity without having to make regular payments on the interest accrued. This can be the difference between staying in your home or not if you are looking at a lack of income going into your retirement.
The good news is that by getting a Reverse Mortgage, you cannot only stay in your home, but you can expect a regular income through your loan that will allow you to continue to live with more financial freedom.