Traditional vs. Reverse Mortgage
What is a traditional mortgage? This is a type of loan where the lender will lend you the funds to buy a new home. In exchange, you agree to pay the lender back any money you borrowed, along with interest, over an extended period of time.
What is a reverse mortgage? This type of loan allows you to access a portion of your equity that had been built up in your home to be obtained without having a monthly mortgage payment. The existing mortgage balance will be paid off during the process of a reverse mortgage loan. You must be at least 62 years or older to apply for this loan.
So, what home loan is right for you?
A traditional refinance makes more sense for those who:
- Don't plan on living in this home long term.
- Have sufficient retirement funds and won't be supplementing your retirement income.
- Are not 62 years of age or older.
- Are not struggling to make your monthly mortgage payments.
A reverse mortgage loan makes more sense for those who:
- Plan to stay in your home long term.
- Are looking to supplement your retirement income and could benefit from no monthly mortgage payments.
- Are 62 years of age or older.
- Want to plan ahead for a rainy day and obtain a line of credit for unexpected expenses.
HECM vs Traditional – What's the Process?
|At The Time Of Closing|
|You Owe A Lot Of Money And Have Very Little Equity On The Home.||You Do Not Owe Much Money And Have A Lot Of Equity On Your Home.|
|During The Loan|
|Monthly Mortgage Payments Must Be Made. Eventually, Your Loan Balance Decreases And You Begin To Grow Equity.||No Monthly Mortgage Payments. Loan Proceeds Are Received Monthly As A Line Of Credit Or If You Choose, A Lump Sum. The Loan Balance Rises And The Equity Decreases.|
|At The End Of The Loan|
|Nothing Is Owed And You Gain A Substantial Amount Of Equity.||There Is Little To No Equity On Your Home And Your Loan Balance Has Increased.|