Home equity loans allow homeowners to have access to the equity within their main residence without selling the property. Equity includes the difference between what your property is worth and what’s owed against it. Home equity loans, traditionally, were referred to as 2nd and 3rd mortgages.
Equity within a house derives from a couple of sources. Over time, mortgage payments decrease the quantity owed against the house, and real estate appreciation boosts the gross value. Following several years of making payments on the mortgage, the equity that is accrued may be significant. For instance, a house bought for $250,000 with zero down payment and appreciating 5 percent per year might have $50,000 in equity within as little as 5 years.
Finance companies and banks oftentimes offer favorable rates upon a home equity loan, as real estate is considered a stable investment. It’s particularly a fact as the economy is not struggling, as real estate possesses a lengthy history of appreciation. Also, mortgage lenders have accessibility to quasi-governmental agencies like Fannie Mae (Federal National Mortgage Agency), which decrease lending rates by taking interest risk away from a lender.
As a home equity loan has favorable rates that are relative to credit card debt or car loans, the rates still are greater than those for a 1st mortgage. Home equity loans may be turned to the 1st mortgage with a process referred to as refinancing.
Reverse Mortgage
Reverse mortgages for seniors are similar to home equity loans in that they allow access to the cash value of a homeowner’s equity. However, rather than a lump sum, a reverse mortgage will pay out in quarterly or monthly installments. A reverse mortgage is targeted at seniors who’d like extra income, yet do not want to sell their houses and move. Upon death, a property either is sold by the estate, or a title will revert to a lender, who then will sell the home themselves.
Reverse mortgages for seniors may be confusing, and reverse mortgage experts require special skills to successfully work with customers. Because a reverse mortgage is based upon the equity available in the property, creditworthiness of an applicant isn’t that important, yet lenders must consider factors like the possibility for a dip in the value of the house that might force a bank to take a loss, alongside the health and age of an applicant.
For more information on our reverse mortgages for seniors, contact Longbridge Financial today.
