Reverse Mortgages 101: HELOC vs Home Equity Loans vs Reverse Mortgages

The methods you use to access the equity in your home has significant tax and cash flow implications.

Since reverse mortgages are relatively new products, many people have some concerns about them and opt for the more familiar home equity lines of credit or home equity loans. Each one of these options have different repayment terms, tax implications, and effects on cash flow. Before deciding which means of accessing the equity in their homes is the best option for them, seniors need to review their financial situation with a mortgage expert who has extensive experience with all these products.

Home Equity Lines of Credit

Home equity lines of credit (HELOC) offer senior access to the equity in their homes as they need it as opposed to receiving the funds in a lump sum. This can help avoid unnecessary interest payments. The loan principle and interest charges are paid on a monthly basis, which puts a dent in the senior’s cash flow.

Home Equity Loans

These home loans allow seniors to access the equity in their home in a lump sum payment. The repayment terms typically require monthly payments that the lender applies to the interest initially, then the payments are applied to both the loan principle and interest. The interest payments are tax deductible, but these loans also crimp the senior’s cash flow.

Reverse Mortgages

Reverse mortgages offer seniors the advantage of access to the equity in their homes without having to make monthly payments as long as they live in the home. To learn more about reverse mortgages, contact a mortgage professional today.