Educate Yourself

Traditional vs. Reverse Mortgage

What is a traditional mortgage? This is a type of loan where the lender will lend you the funds to buy a new home. In exchange, you agree to pay the lender back any money you borrowed, along with interest, over an extended period of time.

What is a reverse mortgage? This type of loan allows you to access a portion of your equity that had been built up in your home to be obtained without having a monthly mortgage payment. The existing mortgage balance will be paid off during the process of a reverse mortgage loan. You must be at least 62 years or older to apply for this loan.

So, what home loan is right for you?

A traditional refinance makes more sense for those that:

  • Don’t plan on living in this home long term.
  • Have sufficient retirement funds and won’t be supplementing your retirement income.
  • Are not 62 years of age or older.
  • Are not struggling to make your monthly mortgage payments.

A reverse mortgage loan makes more sense for those that:

  • Plan to stay in your home long term.
  • Are looking to supplement your retirement income and could benefit from no monthly mortgage payments.
  • Are 62 years of age or older.
  • Want to plan ahead for a rainy day and obtain a line of credit for unexpected expenses.

HECM VS Traditional - What's the Process?

Traditional
HECM
AT THE TIME OF CLOSING
You owe a lot of money and have very little equity on the home.
You do not owe much money and have a lot of equity on your home.
DURING THE LOAN
Monthly mortgage payments must be made. Eventually, your loan balance decreases and you begin to grow equity.
No monthly mortgage payments. Loan proceeds are received monthly as a line of credit or if you choose, a lump sum. The loan balance rises and the equity decreases.
AT THE END OF THE LOAN
Nothing is owed and you gain a substantial amount of equity.
There is little to no equity on your home and your loan balance has increased.