Reverse Mortgages Versus Home Equity Loans and Which Option is Best for Homeowners 

Marty Cantor, a certified personal accountant and economic development consultant, joined Cheddar News' <i>be Well</i> to provide some expert tips on mortgages and general financial best practices. Cantor broke down the differences between a reverse mortgage and a home equity loan and who might benefit most from each.&nbsp;

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Reverse Mortgages vs. Home Equity Loans: What's Best for Homeowners 

What about those different types of mortgages? Obviously, you know, we've seen mortgage rates really start to change a lot of people think they're high. But if you put it in the context of like 1981 or whatever, it's, it's wildly not. Yeah, I mean, look, you got variable mortgages and, and you have fixed mortgages, uh variable mortgages, everybody looks at favorably because it's, it's usually at a lower rate than what the fixed mortgage is. But the is it, it adjusts as interest rates go up. So you could ultimately wind up paying a variable mortgage that was larger than the fixed mortgage at the time that you purchased. And that, and that creates, you know, obviously the economic problem for your household sometimes it's better to get a fixed mortgage. So you know what you're gonna pay every month and then when the mortgages come down, you refinance to a lower mortgage rate and, and has a good impact during your household budget. And I think that's one of the things too is like figuring out when is a good time to actually refinance. And then for, you know, for some seniors maybe having this idea of a reverse mortgage and trying to take some of that money out of their home without losing the house they're in. Well, uh most seniors if they need money to live, uh uh obviously with costs going up and inflation going up, uh Social Security did go up, but it depends upon your payments. Uh then you, you know, you need money to live and, and a reverse mortgage means the uh the bank will give you cash to live up live now. But ultimately, when you pass away, the bank can take over your house. So your heirs don't get it. If the heirs want the house, they have to pay off the, the reverse mortgage to the bank. But it's a good way for seniors. If they live alone, they don't have heirs to get their money out now. So they can afford to live. Let's talk a little bit about the downsides. I know that reverse mortgages also though can come with a lot of fees. Well, yeah. Yeah, I mean, it's, it's almost, uh, the same kind of fees, uh, that you'd experience when you buy a house. There are closing costs, there are title searches, uh, bank fees, lawyers fees. So the fees are gonna be pretty much the same, uh, because you're going through a real estate closing in a, in a sense. Uh, so, uh, you're always gonna have those but you can always fold those in, uh, uh, to the mortgage. So you'll get the reverse mortgage. So you get less money, the bank, uh, to pay off the fees. Uh, the other thing is that, uh, you won't get 100% to your house because the banks want, want you to have some skin in the game. Uh, so, and, and to limit the banks, uh, downside because remember, uh, you today, uh, you'll have to put 20% down because this way it protects the bank, uh, from any decline in the housing markets. So the bank wants the same protection, uh, as if you bought your house in, in terms of reverse mortgage as well to protect their interest and their equity, right? Because what, I guess what would be the impetus to decide? Ok, I wanna take the reverse mortgage instead of taking out like a home equity loan. Well, a home equity loan, you have to pay off every month, a reverse mortgage. You don't have to pay off, they give you the money you don't, uh, and the bank builds in, you know, whatever cost are there. So if you don't have money and you're not working, you're retired and your income is not going up. Uh, the reverse mortgage may be good for you because this way you're getting extra cash to live on. Uh, the other thing is, uh, it depends upon how old you are and how long you're going to live, you know, the life expectancy, uh, you know, the money doesn't last forever. Uh, so, uh, you know, those are all the facts is that you would have to consider how old you are the fees, uh, how much money you need to live? What are your budgetary shortfalls? Will this cover it? Uh, you know, and then you can make a decision? Ok. It is time for Marty's mailbox. We asked you to write in your financial questions and we have an expert here to answer them. So today we have a question from Kim who says increased interest rates hurt those who need money the most and help those who have plenty of money. Well, that's true. And it's really all a matter of if you have money to invest that you're not gonna need uh in the short term, then you'll get a higher rate. Uh if you don't have enough money to invest that or money that you really need uh to meet your household financial budgets, then uh you're not gonna get the higher interest rates and a lot of middle class uh people and, and the, and the lower income people don't have that kind of money, excess money. Uh they have to pay for their food and their energy and their home mortgages and their rents and, and their household budgets partly break even. So there's really no money to invest. So in times like this, uh those the richer people, the wealthier people, the excess money will get richer and will get wealthier and those who don't have the money will not and they'll, they'll remain where they are. But then what's the feds thinking in doing that? Well, the feds thinking and doing that is inflation is really a tax on, on those people who can least afford it. So by the Fed, trying to, by increasing interest rates, trying to take money out of the economy to slow it down. So prices don't go up and price and there's price stability then that benefits the middle class and the lower income people. The downside is uh even if the fed does uh achieve their 2% inflation growth, prices are not gonna come down. I think we have a price reset uh right now and the prices we see now are gonna be the prices that are gonna be going forward. So what the FED is doing is to prevent prices from going any higher.