I get asked all the time ; Is reverse mortgage better than a home equity line of credit (HELOC)?
Simple answer: If you have excess income after paying all your bills a HELOC might be the answer, if not a reverse mortgage is your only solution if you need equity from your home.
The table below illustrates the differences between a reverse mortgages and the typical HELOC. The key thing to keep in mind is that a reverse mortgage provides peace of mind because you will never be required to make payments nor will you be forced to move or sell. A reverse mortgage helps to eliminate the economic risks that exist with a HELOC. If your house price decreases, or interest rates increase, or if you have major change in income a HELOC can be called at the lenders discretion.
……………………………………………….Reverse Mortgage HELOC
|Credit Check and/or income verification||Not Required||Required|
|Age eligibility||55 years and older||18 years and older|
|Payments||Not required as long as the homeowner is living in the home*||Regular payments are usually required. If LTV is at maximum, interest payments MUST be made|
|Negative equity protection||Standard||Not available|
|Risk of non-renewal, cancellation or foreclosure||The loan will home have to be renewed or called||The loan maybe called or not renewed depending on LTV, or change of income.|
|Death of spouse||The loan will not be called, and the surviving spouse will not have to requalify||Surviving spouse may need to requalify, and the loan maybe called|
|fees||One time appraisal and legal fees, which can be paid out of the mortgage proceeds.||Common fees include an appraisal fee, legal fees and monlty administration fees|
|Maximum loan to value (LTV) advance||Up to 55% (based on age, type of property, and location)||Up to 65% LTV (credit, income and debt servicing required above 50% LTV will all banks.|
|Everyday banking||Clients continue to bank with their existing financial institution.||clients maybe forced to open an account that combines chequing, savings, and borrowing accounts.|