A reverse mortgage and a home equity loan are both options for homeowners to tap into the equity in their homes, but they have some key differences:
- Loan repayment: A home equity loan is a traditional loan that is repaid in monthly installments, while a reverse mortgage is a type of loan that does not require monthly payments. With a reverse mortgage, the loan is repaid when the borrower moves out of the home, sells the property, or passes away.
- Qualification requirements: To qualify for a home equity loan, the borrower must have good credit and income, while a reverse mortgage does not require income or credit qualifications. Instead, a reverse mortgage is based on the borrower’s age, home value, and equity.
- Loan amounts: The amount of a home equity loan is determined by the amount of equity in the home and the borrower’s creditworthiness, while the amount of a reverse mortgage is based on the borrower’s age, the value of the home, and the equity.
- Ownership of the home: With a home equity loan, the borrower retains full ownership of the home and is responsible for making monthly payments, while with a reverse mortgage, the lender places a lien on the property to secure their interest in the loan. The borrower retains ownership of the home, but the lender has the right to sell the property to recoup the outstanding loan balance if the borrower defaults on the loan or fails to meet the terms of the loan agreement.
In summary, a home equity loan is a traditional loan that requires monthly payments and good credit and income qualifications, while a reverse mortgage is a type of loan that does not require monthly payments and is based on the borrower’s age, home value, and equity. Both allow homeowners to tap into the equity in their homes, but they have different repayment requirements and qualification standards.