Reverse Mortgages and Home Equity Loans: The Differences
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It is important to realize the difference between a home equity loan and a reverse mortgage before you enter into any dealings for either type of loan. While both a home equity loan and a reverse mortgage have their uses in different situations, they are by no means the same loan. While they are similar in many respects, there are major differences between the two loan types and these differences can mean the difference between a good loan and a bad loan, depending on what situation your current finances are in. Another article dealt with the similarities between reverse mortgages and home equity loans, but this article will discuss the differences between the two.

Difference #1 – Conditions for Approval

One of the biggest differences between a home equity loan and a reverse mortgage loan is that they have different conditions for approval. When you look at home equity loans, you will find that their conditions for approval are very similar to the conditions used for the vast majority of home loans as well as the vast majority of loans. These include things like your income level, your age, your current financial situation, your credit rating, your current health situation, and anything else the creditor might use to determine your risk level. Based on all of these different factors, your eligibility for a home equity loan is determined.

However, reverse mortgage loans are different. A reverse mortgage lender is not at all interested in most of the factors mentioned above; factors that are crucial when it comes to home equity loans. In fact, the only factor from the above paragraph that reverse mortgage lenders would be interested in is your age. There is an age requirement of 62 years or older in order to establish eligibility for the reverse mortgage, but beyond that, none of the other factors are taken into account.

Difference #2 – Repayment Conditions

The second big difference between these two types of loans lies in the area of repayment. All loans need to be repaid with interest regardless of whether they are reverse mortgages, home equity loans or any other type of loan, but the thing to be aware of is that the repayment conditions are different for different loans. Repayment conditions are important because they often mean the difference in whether a particular person can financially benefit from a loan or whether it would be disadvantageous for them to try.

With home equity loans, the conventional repayment strategy is the one that is required. If you take out a home equity loan, you are expected to repay both the principal and the interest through making monthly payments on the balance until you have eliminated it entirely. If you fail to do so, you could lose your home.

This can never happen with any reverse mortgage loans. Reverse mortgages are paid back when you sell your house or pass away, so there is no way possible for you to lose your house as a result of taking out a reverse mortgage. This is the big difference between the two types of loans, as well as the reason why reverse mortgages are often better choices for people aged 62 and older.

Learn more about Reverse Mortgages >>