Reverse Mortgages vs HELOC: Accessing Equity

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Reverse Mortgages vs HELOC: Accessing Equity

For many people, their home is their biggest investment. However, sitting on that much equity can feel pretty useless if you’re unable to access it. Luckily there are several products that allow homeowners to use their investment even before it is completely paid off by borrowing against the equity in their home. The two most popular products that Canadians use to access this equity is through reverse mortgages or home equity lines of credit. In this week’s article, we will explore the similarities, the differences, and how to tell which product is right for you.


A reverse mortgage is a loan where homeowners 55 years of age and older may borrow up to a certain percentage of the value of your home.


A home equity line of credit (HELOC) is a line of credit where homeowners may borrow up to 80% of the value of their home, minus the mortgage they still owe.


Advantages

  • Reverse Mortgage:

    • No monthly payments. Reverse mortgages do not need to be paid until the homeowner passes away or moves out.

    • Creates a stable retirement income. This product was specifically designed for seniors who want to use their home equity to support them throughout retirement.

    • Money coming from Old Age Security or Guaranteed Income Supplement benefits will not be affected.

  • HELOC:

    • Revolving credit you can access at any time. Because of this, you only need to pay interest on what you borrow.

    • Typically a lower interest rate than other types of credit. Many homeowners will use a HELOC to consolidate their debts to take advantage of this lower rate and set themselves up better financially.

    • There are no prepayment fees, so you can pay the line of credit off whenever it fits your schedule best.


Considerations

  • Reverse Mortgage:

    • Before you start planning a cruise with your new loan, you must pay off any existing loans or lines of credit secured against your home. You can do whatever you wish with the remaining money.

    • You will have a set amount of time to pay off the loan if you move out or pass away. It’s important to be aware of this timeframe and ensure it is realistic for you or your beneficiaries.

  • HELOC:

    • Monthly payments are only paid against interest. Homeowners who choose this route must exercise excellent self discipline as this makes it very easy to incur more debt than you can afford to pay off.

    • If you switch your mortgage to another lender, you must pay off the full balance of the HELOC.


In conclusion, reverse mortgages are typically used by seniors looking to secure retirement income, while HELOCs are often used as revolving credit to help pay down other debts. To learn more about either of these products, reach out to our Calgary mortgage experts at Source Mortgage today!



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Source was absolutely great to work with - went above and beyond to help us get everything done when buying our new home. Highly recommended!! Chad and Jenelle Richards Jan 09 2013

Chad and Jenelle Richards
Added January 23rd 2013

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