HELOC vs. Reverse Mortgage

by Francine Huff
June 17th, 2010

A reverse mortgage allows you to convert some home equity into cash. The money can be used for any purpose, including medical bills, property taxes, home repairs, or paying off debt. But a home equity line of credit (HELOC) could also allow you to tap home equity to get the cash you need. Here are some things to consider when choosing between reverse mortgages and HELOCs.

Repayment Schedule

A reverse loan does not have to be repaid until you move out of your home. So you can borrow with a reverse home mortgage and live there for the rest of your life without having to make any monthly payments. With a HELOC, you are required to make monthly payments if you carry a balance. When deciding whether to use a HELOC, it’s important to look at your current income as well as your future income to determine if you can afford to make monthly payments on a loan.

Mortgage Interest Rates

Reverse loans can have fixed interest rates if you withdraw a lump sum, or variable if you choose a line of credit or monthly disbursements. With a HELOC the interest is variable. Having an interest rate that can fluctuate makes if difficult to predict how much your monthly payments might rise in the future. But keep in mind that when interest rates fall, adjustable rates dip, too.

Compare Loan Deals

A housing counselor approved by the Department of Housing and Urban Development (HUD) can help you look at the pros and cons of reverse mortgages and HELOCs. If you don’t plan to live in your home for much longer, it could make more sense to get a HELOC if you need money now. A reverse loan may be a better option if you have no plans to move out of your home.

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