There are plenty of reasons why you would want to take advantage of your home equity, and plenty more reasons why you would want to do this without having to sell your home. The first thing that homeowners think about when they want to do this is a Home Equity Line of Credit (HELOC). But wait! If you are aged 55 or over and own your home, you might want to consider a reverse mortgage product instead. Below you will find a comparison of both products to help you decide which one may be best for you.

HELOC

The Home Equity Line of Credit is typically a larger loan option than you would get with a reverse mortgage, as it gives you access to up to 80% of your home’s value minus a remaining mortgage payment, or 65% of your home’s value if you own your home. HELOCs are based on a revolving credit system, which means you will only start paying interest when you actually borrow money, but you can have the money ready to access at any time. With each payment, the amount that you can borrow increases, and you must only make the minimum interest payments. The interest rates for HELOCs tend to be 2-3% lower than that of a reverse mortgage, but these rates are variable.

On the other hand, a reverse mortgage is a product that also allows your to borrow up to 55% of the value of your home. The amount you are eligible to borrow is based on your age, the location of your home, and the amount of equity you hold. The reverse mortgage has no monthly payments until you choose to move or sell your home, and at this time you would pay off the remaining loan and keep the rest of the money. With a higher interest rate comes the stability of a fixed rate that will not change over the course of the term. You will also never be forced to sell your home with a reverse mortgage product.

One of the main differences between the two products is that with a HELOC you do have to make monthly payments as soon as you borrow money, whereas with a reverse mortgage you will not have to make regular payments. A HELOC will also take into account your credit score or income while approving, while a reverse mortgage application does not require a credit check. There are pros and cons to each product, so it is best to determine the reason why you will need a loan, and what your future plans look like.

Whether you are considering unlocking the equity of your home to enjoy an extended vacation, cover unexpected costs, gift friends or family members, or upgrade your home, take into account all pros and cons and talk to a reverse mortgage professional like myself before deciding what is right for you.