If you’ve decided to tap into your home equity during retirement, there are a few different ways to go about doing this. Most likely, your options will come down to a Reverse Mortgage or a home equity line of credit, or “HELOC”.
Reverse Mortgage vs. HELOC
A reverse mortgage and a HELOC have a lot in common.
- Both a reverse mortgage and a HELOC are loans secured by the equity in your home.
- After taking out a line of credit or a reverse mortgage, you can repay the loan at any time.
- You will accrue interest over time with both loan types.
There are also some distinct differences.
- With a HELOC, you will begin making interest payments right away, whereas with a reverse mortgage, you will never need to make a payment until you pass away or move from your home.
- A HELOC requires a certain credit threshold as well as a minimum level of income. With a reverse mortgage, the borrower’s financial picture is analyzed according to different terms that may consider credit and income, but are not now dependent upon or limited to those factors.
- The available loan amounts from a HELOC and a reverse mortgage are not the same. You can find out how much you can borrow using online calculators.
- A reverse mortgage allows for a lump sum option or a line of credit, while a HELOC is always in the form of a line of credit.
The best choice will depend on your financial situation and preferences.