Traditional Vs Reverse Mortgage

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Traditional Mortgage Defined

A conventional or traditional mortgage is used to buy or refinance a home.  The lender lends you the funds, and in exchange, you agree to pay the lender back the money you borrowed, plus interest, over an established period of time, or term.

Reverse Mortgage Defined

A reverse mortgage loan allows homeowners to access a portion of the equity they’ve built up in their home to obtain cash without monthly mortgage payments.1  Any existing mortgage on your home must be paid off using the reverse mortgage proceeds.  Reverse mortgages are designed for seniors age 62 and older, and typically must be repaid when the borrower moves out of the home or passes away.

Comparing a Traditional to a Reverse2

At the time of loan closing:

  • Traditional – You owe a lot and have little equity in the home.
  • Reverse – You owe little (or nothing) and have a lot of equity in the home.

During the loan:

  • Traditional – You make monthly payments. Over time, the loan balance decreases and the equity grows.
  • Reverse – You don’t make monthly mortgage payments.1 You receive the loan proceeds monthly, as a lump sum or as a line of credit.  Over time, the loan balance rises and the equity decreases.

At the end of the loan:

  • Traditional – You owe nothing and have substantial equity in the home.
  • Reverse – You have a loan balance and have little or no equity in the home.

Bottom Line:

  • Traditional – Your debt decreases and your equity rises over time.
  • Reverse – Your debt increases and equity decreases over time.

Which Product is Right for You?

A traditional refinance might make more sense when:

  • Your current home isn’t likely to be your last home. Reverse mortgage fees can be costly, so if you don’t plan to stay in your home long term, a reverse mortgage might not be worth the expense.
  • You have sufficient retirement funds and don’t need to supplement your retirement income.
  • You’re not of age for a reverse mortgage.
  • You want to leave your home to your children or heirs. With a reverse mortgage, often times the home is sold to repay the loan.  Therefore, if leaving your home to your heirs is important, a traditional refinance may be a better fit.
  • You’re not struggling to pay your monthly mortgage payments.

A reverse mortgage might make more sense when:

  • You plan to stay in your home long term. Reverse mortgages were designed to help seniors stay in their homes and age in place.
  • You don’t have any heirs to whom you wish to pass your home on to.
  • You’re looking to supplement your retirement income and could benefit from no monthly mortgage payments.1
  • You’re age 62 or older and are running short on retirement funds.
  • You want to plan ahead for a rainy day and obtain a line of credit to pay for unexpected expenses.

If you’d like to learn more about reverse mortgages, use our Reverse Mortgage Calculator or call 800-218-1415.  Liberty Home Equity Solutions is one of the nation’s largest reverse mortgage lenders.  We are dedicated to educating seniors about their reverse mortgage options and providing loans that help them meet their financial and personal needs.

For more information on refinancing with a traditional mortgage, visit our website Homeward Residential or call 800-359-0625.  Homeward Residential has been providing mortgage solutions to customers since 2008.  We are committed to your mortgage refinance loan needs, and to making it easy for our customers to get great rates and close their loans quickly.  Whatever your reason is for refinancing your home, our loan officers are here to help.  Contact us today to see how you could benefit from refinancing!

 

1 You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance and maintain the home according to Federal Housing Administration requirements.

2 Conventional vs. Reverse Mortgage – U.S. Department of Health and Human Services, longtermcare.gov, http://longtermcare.gov/costs-how-to-pay/paying-privately/reverse-mortgages/conventional-vs-reverse-mortgage/.

Author:  Meredith Manz

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