Differences Between Reverse Mortgages vs. Home Equity Loans vs. Equity Sharing Agreements

Reverse Mortgage vs Home Equity Loan vs Equity Sharing Agreement: What to Consider

When it comes to securing extra financial assistance in retirement, homeowners have a few different options available to them. Two popular choices are getting a reverse mortgage or a home equity loan (also called a second mortgage). However, there is also another potential option known as an equity sharing agreement. Here are a few key considerations to keep in mind when trying to decide which option is best for you.

Age Requirements

One of the main eligibility requirements for a reverse mortgage is that you must be at least 62 years old. With a home equity loan, there is no age requirement, although most lenders prefer that you be at least 55 years old. There is also no age requirement with an equity sharing agreement, although most people who enter into these types of agreements are over the age of 60.

Loan Amounts

The amount of money you can borrow with a reverse mortgage depends on several factors, including your age, the value of your home, and the current interest rate. Home equity loans typically allow you to borrow up to 80% of the equity in your home, although some lenders may only allow you to borrow up to 60%. With an equity sharing agreement, the amount of money you can receive will depend on the percentage of equity you agree to share, as well as the value of your home.

Interest Rates

Interest rates on reverse mortgages are typically higher than those for home equity loans because the loan is not repaid until after the borrower dies or sells the home. Home equity loan interest rates are typically lower than those for unsecured loans such as personal loans, but they are often higher than the rate you would get if you refinance your first mortgage. Equity sharing agreements typically have variable interest rates that are based on the prime rate plus a margin.

Repayment Terms

With a reverse mortgage, you do not have to make any monthly payments as long as you live in your home. The loan is not repaid until after you die or sell the home. Home equity loans typically have terms of 5 to 30 years, and you will need to make monthly payments. With an equity sharing agreement, the repayment terms will be determined by the agreement you reach with the other party.

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