Reverse Mortgage Vs A Home Equity Line Of Credit

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.