The Million Dollar Question: Reverse Mortgages vs. HELOCs vs. Cash-Out Refinance
What's the Difference Between a Reverse Mortgage, HELOC, and Cash-Out Refinance?
When it comes to tapping into your home equity, there are several options available. Two of the most popular ways are through a reverse mortgage and a home equity line of credit (HELOC). Both allow you to borrow against your home equity, but there are some key differences to consider.
A cash-out refinance is another option for tapping into your home equity. With a cash-out refinance, you take out a new loan that is larger than your current mortgage. You then use the extra cash to pay off debt, make home improvements, or for other expenses.
Reverse Mortgage
A reverse mortgage is a loan that allows you to tap into your home equity. With a reverse mortgage, you borrow against the equity in your home and make no payments until you die, sell the home, or move out. The amount you owe on the loan, plus interest and fees, can never exceed the value of your home.
Benefits of a reverse mortgage include:
You can stay in your home as long as you want.
You don't have to make any monthly payments.
The loan is typically tax-free.
Drawbacks of a reverse mortgage include:
You may owe more than the value of your home if the loan balance grows larger than the value of your home.
If you move out or sell the home, you may have to sell the home for enough to pay off the loan balance or pay the difference out of pocket.
HELOC
A HELOC is a loan that allows you to tap into your home equity. With a HELOC, you borrow against the equity in your home and make payments until the loan is paid off. The amount you owe on the loan can never exceed the value of your home.
Benefits of a HELOC include:
You can use the money for anything you want.
You have a set repayment period.
The interest rate is often lower than other types of loans.
Drawbacks of a HELOC include:
You may have to make monthly payments.
If interest rates rise, your monthly payments could increase.
The loan is typically unsecured, which means it could be at risk if you default on the loan.
Cash-Out Refinance
A cash-out refinance is a loan that allows you to tap into your home equity. With a cash-out refinance, you take out a new loan that is larger than your current mortgage and use the extra cash to pay off debt, make home improvements, or for other expenses. The amount you owe on the loan can never exceed the value of your home.
Benefits of a cash-out refinance include:
You can use the money for anything you want.
You may be able to get a lower interest rate than with other types of loans.
The loan is typically secured by your home, which could help you get a lower interest rate.
Drawbacks of a cash-out refinance include:
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