Equity in your home is always a positive, but many homeowners aren’t sure how they best take advantage of the equity they live with. Do they take out a reverse mortgage or a home equity line of credit? What are the rules for each, and do they even qualify? These are a few of the most important questions people ask when it comes to how they can get what they want out of their home, but there are more than a few considerations that should be taken into account long before a decision is made. Reverse mortgages and lines of credit are vastly different, and many homeowners are unaware of how they can affect the person who is living in the home.
Home Equity Loans
The good news about a home equity line of credit is that it’s available if there is equity in your home. You can borrow this money to make changes to the home, improve it, add onto it, and do whatever you want with it. It’s your money to use as you please and see fit. The other positive regarding a home equity line of credit is the loan type is available to anyone who owns a home in which they have some equity. There are no age limits associated with this type of loan. The positive attributes of a home equity line of credit are numerous, but there are cons associated with this type of credit.
Homeowners must have good enough credit to qualify for this type of loan. Without a good credit score, it’s impossible to get a good rate or even approval for the loan. If the rate is high, you might not be able to afford the payments on the loan. If your credit is very poor, you might not even find approval on your loan. It’s a scary concept, and it’s one that many people can’t face. Additionally, this loan must be paid back over time, which can become quite expensive as you continue to borrow more and more money for it.
People love these, and they’re a lot more affordable for seniors. They are only available to seniors, however. You must be of a certain age. This works by allowing seniors to take out the equity in their home without making monthly payments. The amount they can borrow each month also changes with the economy and other factors, allowing borrowers to take more each month. This money is money they’ll never pay back. It’s also guaranteed. You can borrow the amount of money your house is worth no matter your income or credit.
The house loan is paid for when the home is sold. The person who takes out the loan will leave the home to the bank or to their family when they pass on, and the house must be paid off or listed for sale immediately to satisfy the terms of this type of mortgage. The downfall to this is you have no home to leave your kids if they cannot afford to pay off the loan or buy the house on their own. This has the potential to become a devastating position for family if you are worried about how they will survive once you are no longer with them.
There are many pros and cons associated with both types of loans, but you are going to choose the best for your personal financial situation. Financial experts argue your job is not to leave your kids with anything but to live your best life financially. Take that into consideration when it’s time for you to make the important decisions regarding your bank account and finances.
Look into the options of both loans and figure out which one works best for your income and situation. If you can afford to make payments each month on a line of credit, this is probably the best solution. If not, you can do what works for you and take advantage of the offers that are available for seniors on a fixed income without much chance of seeing funds in another manner that’s more traditional.