Home Refinancing & Reverse Mortgage Loan Differences - Article Written by Maria Ny

Home refinancing is a forward loan and reverse mortgage loans are home equity conversion mortgages .There are several different ways to get monetary payments based on your home's equity - but what is the difference between refinancing and reverse mortgage, two of the most popular?

According to the U.S. Department of Housing and Urban Development (HUD) website, a reverse mortgage is a special type of home loan that lets a homeowner convert a portion of the equity in his or her home into cash. A home loan refinance is the process of replacing the homeowner's current mortgage with a new one for reasons like getting cash back on the equity, debt consolidation, payment of medical bills and lots of other reasons.

While a reverse mortgage and a home loan refinance are similar in the effect that both can entail cashing out on home equity, there are several key differences. For one thing, home refinancing and 2nd mortgages require you to have a reasonably low debt to income ratio. This, combined with a calculation of how much equity you have in your home and consideration of your credit scores will determine whether or not you qualify and how much you can borrow. However, with a reverse mortgage, there are no income requirements. It's available to you regardless of your current income.


Homeowners compare home refinancing and reverse mortgages.

The amount you can borrow depends on your age, the current interest rate and the appraised value of your home or FHA's mortgage limits for your area, whichever is less.

Another key difference is that with mortgage refinancing and equity loans, you must repay the loan. But, with a reverse mortgage you don't make payments, because the loan is not due as long as the house is your principal residence. You just have to continue paying your real estate taxes (property taxes) and your other bills, like your utility bills, etc. And, with a reverse mortgage, you cannot be foreclosed or forced to vacate your house because you "missed your mortgage payment" as you would if you didn't make your refinanced house loan payment or second mortgage payment. The only time you have to repay the reverse mortgage home is when you sell your home or no longer use it for your primary residence. At that point, you or your estate will have to repay the reverse mortgage loan. If there is any equity left in the house after the reverse mortgage is paid, it will go to you or your heirs. However, none of your other assets are affected, and the debt is never passed along to the estate or your heirs.

It's for these and other reasons that the reverse mortgage is probably the most popular of the senior home loans. Did you know that HUD offers FHA-insured reverse mortgages? Call 1-800-569-4287, toll-free, for the name and location of a HUD-approved housing counseling agency near you, so you can get answers to your questions about FHA-insured HUD reverse mortgages.


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