Equity, reverse mortgages or home loans. Which are best?

Equity, reverse mortgages and home loans, which are best? Let’s face it with all the new home loan formats, equity release and reverse mortgages which are now available it can be hard to know which is the best option for you, or even what they actually mean.

This article looks to explain the main characteristics of each product and why it might or might not be the option for you. We will start with basics. All these products, whether equity home loans or equity line of credit and  reverse mortgages have some basic points in common. They all supply a medium by which a lender will provide you with money for interest and with some kind of security in exchange. Interest is the percentage of profit the lender gets for every dollar every year. The security is something of value that the lender can sell or own if you fail on your payments.

So now we’ve told you what you probably already know let’s get with the nitty gritty of this article. Equity loans and lines of credit, reverse mortgages and home loans.

Equity loans and lines of credit. Both of these products share the same security for the lender, your home. To apply for any kind of equity loan you must own a home that has some equity on it. That means that the market value of the house is greater than the value of the mortgage or loans pending on it. This equity can be used without selling your home with both  these products. The difference is that with an equity loan you get a lump sum while with an equity line of credit you have a kind of pool of money you can use on demand as you need it, to a certain maximum set by the you and the lender. Both products have considerably lower interest rates because the mortgage or loan is always within a safe margin of the equity of the house making it a safe bet for the bank of lending company. Equity lines of credit have the lowest interest rates and work as a very cheap credit card you can use when and how you need.

Reverse mortgages. Reverse mortgages are a great option for senior citizens they allow people over 62 to tap into the equity of their home without leaving their home. The loan will only be paid when they either die or sell the house. The difference between equity mortgages and reverse mortgages is that with reverse mortgages you don’t pay anything at all until you die or sell the home. You simply accrue capital and interest. The interest rates of reverse mortgages are also very competitive as the capital is well protected by the value of the house.

So, which are best? Equity or reverse mortgages / home loans? They are both great solutions for “cheap” interest rates when you need the cash. The reverse mortgages are exclusive for people of 62, and equity lines of credit are the cheapest way to improve your credit score, as it proves (with low interest) you have control over your borrowing and willingness to pay.