Reverse Mortgage VS. Home Equity Loan: Discover the Best Option for You

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Getting conventional, VA and FHA loan gives people the chance to refinance or get another line of credit through their homes. Numerous people have been getting into these refinancing programs to save money on their current mortgages or get cash to use for other needs. Two of the common choices are reverse mortgage and home equity loan.

The two concepts seem similar but they also have their differences. Find out the right option for you with this information.

Reverse Mortgage Definition

Reverse mortgage is a home loan used by senior home owner that allows him to stay in the house without paying loan payments given that he continuously occupy the house. With this mortgage type, the borrower won’t have any liens on the property and keeping him from worrying about bill payments for the home. They can get cash out to pay bills or their medical bills. Numerous property owners have taken advantage of this solution, allowing them to ensure property ownership even after retirement. They consider this mortgage type as a great help in their finances.

The amount of loan available for clients vary depending on various elements like age, appraised home value, and current interest rate.

Using this mortgage is done in two ways. A portion will be paid to the remaining liens or mortgage on the house. The remaining portion will be handed to the clients in lump sum or in monthly payments. Clients can also opt to hold the amount in another line of credit.


People getting this loan need to pass several eligibility requirements to get this loan. To apply for reverse mortgage, clients must be 62 years old and above and living in their primary residences to be used for application. They must also be current on insurance and property taxes, which mean their payments must be settled on time or without any late payments. Finally, clients must keep the property maintained.

How to Apply

Applying for this loan is simple. Buyers need to meet the eligibility requirements then contact a mortgage counselor. They will then accomplish the HUD reverse mortgage counseling form obtained from accredited counseling agencies. Appointment will be set for clients, where they will attend bearing required documents like IDs, home insurance declaration page, social security card, HUG counseling certificate, and others.

Home Equity Loan Definition

Home equity loan also works the same in terms of converting property equity into cash. Taking out this type of loan using the equity is considered as a second mortgage. Buyers will receive the amount in lump-sum, which makes it different from reverse mortgage.

Falling under the category of home equity loan is the home equity line of credit or also known as HELOC. In HELOC, buyers can borrow an amount reaching their approved credit limit in an as-needed basis. The key difference between these two is interest paid on home equity loan is dependent on the total loan amount. On the other hand, HELOC will only mange to pay interest on actual amount withdrawn, which results to fluctuating interest rates.

One thing buyers should remember is the possibility of this loan’s effect on their credit scores. It’s essentially getting another loan that will put a hit on their names recorded in credit bureaus.


Unlike reverse mortgage, home equity loan and HELOC don’t set age requirement for borrowers. Their houses should also possess at least 20 percent equity. Clients must also have good credit score and provide proof of stable income to pay for the loan.

How to Apply

In applying for these loan types, buyers need to talk to their mortgage broker or lender then get the house appraised. After the house is appraised, they will know the amount of money available for them to borrow. All required documents must be submitted for assessors to check and see their eligibility. Once proven and approved, buyers will get their borrowed money and pay them for their financial needs, which usually include home improvement.

One of the things to remember is to check lenders’ special requirements. Different lenders have varying requirements and some lenders may set conventional and FHA loan limits Arizona to determine their eligibility. Lenders’ websites have this information to ensure clients will set their expectation and prepare themselves on the loan application process.

Getting a home loan is considered as an investment. Not only does it help you pay for the house, it can also give you cash when you need it. Talk to your chosen lender to start applying for the loan type suitable for your needs.