Comparing Reverse Mortgages vs. Home Equity Loans vs. Cash-Out Refinance
What's the Difference Between a Reverse Mortgage, Home Equity Loan, and Cash-Out Refinance?
If you're a homeowner, you may be wondering if there's a way to tap into your home equity to get some extra cash. You're not alone - according to a recent survey, almost 40% of Americans say they would use home equity for a major expense such as home improvements, paying for college, or medical bills.
There are three main ways to access your home equity: a reverse mortgage, a home equity loan, or a cash-out refinance. So which one is right for you?
Here's a quick rundown of each option:
Reverse Mortgage: With a reverse mortgage, you borrow against the equity in your home and don't have to make any monthly payments. The loan is repaid when you sell your home or pass away.
Home Equity Loan: A home equity loan is a traditional second mortgage. You'll get a lump sum of cash and will need to make monthly payments until the loan is repaid.
Cash-Out Refinance: A cash-out refinance is basically a new first mortgage. You'll refinance your existing mortgage and take out a new loan for the difference between the two mortgages. For example, if you have a $100,000 mortgage and you refinance for $150,000, you'll get $50,000 in cash.
So which one is right for you? It depends on your situation. Here are some things to consider:
Reverse Mortgage:
- You must be 62 years or older to qualify
- You don't have to make any monthly payments, but the loan balance will grow over time
- You or your heirs will need to repay the loan when you sell the home or pass away
- You'll need to have equity in your home to qualify
Home Equity Loan:
- You'll need to make monthly payments until the loan is repaid
- Interest rates are typically lower than credit cards or personal loans
- You'll need to have equity in your home to qualify
- Your home is at risk if you can't make the payments
Cash-Out Refinance:
- Interest rates are typically lower than credit cards or personal loans
- You'll need to make monthly payments until the loan is repaid
- You'll need to have good credit to qualify
- Your home is at risk if you can't make the payments
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