Contrasting Reverse Mortgages vs. Second Mortgages vs. Equity Sharing Agreements
Reverse Mortgage vs Second Mortgage vs Equity Sharing Agreement: What to Consider
When it comes time to retire, seniors have several options available to them to help supplement their fixed income. Two popular choices are a reverse mortgage and a second mortgage, but there is also another option known as an equity sharing agreement. While all three of these choices offer similar financial benefits, there are key differences that should be considered before making a decision.
A reverse mortgage is a loan that allows homeowners 62 and older to cash in on the equity in their home without having to make monthly payments. The loan is repaid when the borrower dies, moves, or sells the home. A second mortgage is a loan that is secured by the equity in your home, but unlike a reverse mortgage, you will still be required to make monthly payments. An equity sharing agreement is an arrangement between two people whereby one person agrees to share ownership of their home with the other person in exchange for financial assistance. The key considerations for each of these options are discussed below.
Reverse Mortgage:
1. There are no monthly payments required with a reverse mortgage, which can be a big benefit for seniors on a fixed income.
2. The loan is not due until the borrower dies or moves out of the home, so there is no need to worry about repayments during retirement.
3. The loan amount is based on the equity in the home, so it will not deplete the borrower’s savings.
4. There are potential downsides to taking out a reverse mortgage, such as having to pay high interest rates and fees, and being required to maintain the home in good condition.
Second Mortgage:
1. A second mortgage requires monthly payments, which can be a burden for seniors on a fixed income.
2. The loan is secured by the equity in your home, so if you default on the loan, you could lose your home.
3. The interest rates on second mortgages are typically lower than those of credit cards or personal loans.
4. You may be able to deduct the interest you pay on your second mortgage from your taxes.
Equity Sharing Agreement:
1. An equity sharing agreement allows you to share ownership of your home with another person without having to make monthly payments.
2. The arrangement can provide you with much-needed financial assistance during retirement.
3. There are potential risks associated with an equity sharing agreement, such as losing partial ownership of your home if the other person defaults on their payments, or if the value of your home decreases.
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