Difference Between Reverse Mortgage and Line of Credit


Owning your home and want to benefit from its equity can be a tricky situation – so it’s good to know the difference between reverse mortgage and line of credit loans.There are several ways to get money “out” of your home, and depending on your age and credit status, it can be difficult to decide which way will cost you less in the long run. The first thing to think about when considering the difference between reverse mortgage and line of credit is whether you feel you will be able to repay your loan with timely payments. If you do not have good credit, or cannot repay a loan, a reverse mortgage may be your only viable option.Reverse mortgages do not come without their own risks and requirements. You must be 62 or older in order to apply for a reverse mortgage, which gives you monthly payments based on the equity of your home. While this may seem like the most obvious way to get the equity from your home into a liquid state, there are fees involved. There is a closing fee assessed, just as in any mortgage, and the reverse mortgage must be paid back – including interest – upon the mortgage holder’s death or permanent move from the residence.Line of credit loans are also based on the equity of your home, but they work a bit differently. You will get a line of credit based on how much your home is worth – and the lender will also take into account your debt-to-equity ratio (how much you still owe on your home) as well as the value of your home and your credit score. You will get your money from your home in a lump sum – but you must make payments in order to pay back the loan, and lenders can repossess your home if you do not make payments in a timely fashion.Another difference between reverse mortgages and line of credit is the age requirement. You can be any age and get a line of credit loan, but you must be of a certain age to get a reverse mortgage. Additionally, the amount of money and fees owed to the lender in either case will vary, but usually will be less with the line of credit. Finally, when your loan comes due is a big consideration. You must start paying back your line of credit right away, but a reverse mortgage will generally not come due until after your death.Choosing between the different types of mortgages and loans can be tough. It’s best to sit down with a financial advisor, as well as any estate beneficiaries, in order to choose the best solution for your money needs as well as for your whole family.