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.|