Just be warned, Garvens says, reverse mortgages can often come with hefty upfront fees.Before you begin, properly endorse your check. This can be ideal for seniors on limited incomes who have lots of equity in their homes." "The qualification process is simply the appraisal of the home, and the requirements of income, debt servicing, and credit score and history do not play a role as they do in conventional financing. "A reverse mortgage can be one of the best options for older homeowners looking to access equity in their homes," Awram says. Instead, you (or your heirs) repay what you borrowed - plus interest - once you sell the home or die. You don't pay interest or make monthly payments on reverse mortgages, either. These allow you to borrow from your home equity as a lump sum, a line of credit, or via monthly payments. Homeowners 62 and older (sometimes 55, depending on the lender) can also consider reverse mortgages. Home equity loans and HELOCs aren't the only way seniors can access their home equity. See what home equity loan rate you would qualify for here. "Credit cards are the worst means of accessing money because interest rates are as high as 25% right now and they change on a monthly basis," says Jay Garvens, business development manager at Churchill Mortgage. "Their homes are their most significant pieces of equity, so it is better to take from there than to rack up a credit card and use savings to pay it back."Ĭurrently, the average rate on personal loans is 12% compared with under 9% for home equity loan rates. "Generally, high-interest borrowing options such as credit cards and personal loans are not a financially good idea for seniors who have much less cash flow," Awram says. If it's an unavoidable expense, do you have the savings to cover it? If not, would you turn to a personal loan or credit card to pay for those costs? Your alternativesįinally, consider what you need the money for and how else you'd pay for it. "Seniors on a fixed income should carefully evaluate how comfortable they would be with a changing payment," says Ryan Atkins, director of mortgage production at First Horizon Bank. This can make your monthly payments unpredictable and especially challenging for those on limited incomes. Some home equity products - largely HELOCs - also come with variable rates. As Awram explains, "While home equity loans offer immediate access to funds with lower interest rates, they come with repayment obligations and risks of losing the home." That's because home equity loans and HELOCs use your home as collateral, so if you're unable to make your payments on them - even for just a few months - you could be foreclosed on. This is particularly important if you're on a fixed income and have little earnings coming in. You should also think about the payments that will come with your loan - and how you plan to cover them. "Generally, home equity loans are excellent borrowing options for seniors because they tend to have lower rates than unsecured loans like credit cards." "Look at the current rate environment, how much equity they have saved and consider some of the risks," says Rebecca Awram, a mortgage advisor at Axiom Mortgage Solutions and Seniors Lending Centre. This would make it difficult to repay your loans (or for your heirs to), should you need to sell the home. If you have very little equity, borrow nearly all of it, and then your home loses value, you could end up owing more on your home than it's worth. You should also think about the risk your equity stake amounts to. To calculate how much you can borrow with a mortgage balance, take your home's value, subtract the balance, and then multiply by 0.85. If you have an existing mortgage balance, though, it will be less. Lenders generally allow you to borrow between 80 and 85% of your home equity, so if you own your home outright, you could potentially borrow hundreds of thousands of dollars. First, consider how much equity you have in your home, as this can impact both how much you can borrow, as well as how risky the loan is.
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