Reverse Mortgage Line of Credit vs. Traditional Line of Credit
A reverse mortgage line of credit differs from a traditional home equity line of credit in several ways, but it can be hard to tell from a distance. Both a reverse mortgage line of credit and a traditional home equity line of credit allow you to "spend" the equity you have built up after years of paying your mortgage. However, the guarantees offered by the bank and the interest rates charged are very different. Additionally, the repayment structure can be much more problematic with traditional home equity lines of credit.
At Citizens Lending Group, we want you to know all about reverse mortgages before you make the decision to borrow on your equity. Therefore, we have prepared this comparison to help you understand the difference between the most common ways of spending that equity. If you have questions or want to learn more about the reverse mortgage requirements in California, Pennsylvania, or Florida so that you can get started on your own reverse mortgage line of credit, contact us today.
What Makes A Reverse Mortgage Line of Credit Different
Many people incorrectly think that a reverse mortgage line of credit and home equity line of credit are two different words for a "second mortgage," but this is not true. It is true that for all three your home functions as a form of collateral. Both a reverse line of credit and home equity line of credit allow you to borrow money as needed, not in one lump sum like a second mortgage. However, a reverse mortgage line of credit has many distinct advantages for retired and senior citizens.
Both a home equity line of credit and a reverse mortgage line of credit are based on the equity you have in your home. That is, the difference between the appraised value of your home and any balance still due on your first mortgage. The more you own, the more you can borrow. A home equity line of credit, however, requires you to pay monthly payments of principal and interest on an ongoing basis. A reverse mortgage only requires you to pay the full amount of the loan when you sell your home, move out, or pass away.
The unique advantage here is that many seniors looking to spend their home equity are living on fixed incomes that do not allow them to add in the payments required by a home equity line of credit. The one final payment, usually paid near the end of life, is much easier and financially sound for most senior borrowers. Additionally, a reverse mortgage line of credit is available as long as you need, whereas home equity lines of credit are often closed unexpectedly on individuals who do not draw from them frequently.
Contact Us to Learn More About a Reverse Mortgage Line of Credit
The distinctions between reverse mortgages and home equity lines of credit can be difficult to understand at first. Hopefully, this guide has made them clearer for you. If you are curious if a reverse mortgage could fit your needs, contact us at Citizens Lending Group today to learn more about reverse mortgage requirements in Florida, Pennsylvania, or California.