A reverse mortgage loan and a home equity loan do have some similarities. In fact, a reverse mortgage is a home equity loan that works slightly different than most mortgages of this type do. They do not work the same way and a borrower should understand the differences and similarities between the two types of loans before he talks to the loan officer from his bank.
How Home Equity Loans Work
Anyone who has a home who needs a large sum of extra money can take out a second mortgage if he has a reasonable credit rating. A person with a somewhat damaged credit rating may find himself looking for a loan in the sup prime market. Provided the loan goes through, he gets the money right away. He can do this with a reverse mortgage as well. The difference is that a normal home equity loan requires the borrower to pay the funds back immediately.
How Reverse Mortgages Work
Reverse Mortgages, also called a home equity conversion loan work slightly differently. A person who wants to take out a reverse mortgage must be of retirement age before he can use this type of loan. The borrower converts some of the value of his house into the mortgage. He can take it all at once or set up payments over time. Unlike the straight home equity loan, he does not have to pay the loan back until he changes his addresses.
The primary differences are the age and when the bank expects its money back. Reverse mortgages, unlike a more typical loan may be backed by the Farm and Home Administration. Although they do not have to be backed by a government agency, getting a loan insured by the FDA provides additional security to the borrower.
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