What is the cheapest home equity loan?

Often times we will have clients come to us for a mortgage believing that they will qualify because they have so much equity in their home.

What does it mean by having equity in the home?

It means that the home is valuable and that there is a very small or no mortgage on it. The difference between the value of the home and the mortgage amount, if any, is the equity. It is the portion of the home value that is yours.

What does it take to get a conventional mortgage?

In order to get a conventional mortgage, the bank wants to see three main things:

1. That you have equity or a down payment

1. That you have good credit

1. That you have the necessary income to make the mortgage payments

If you are missing one or more of these three things, then we must look for alternatives. For example, if you do not have the necessary income [or you don’t declare your income to the government] but you have lots of equity and good credit, then there are options.

What are the best options when you don’t have or show sufficient income?

 if you do not show sufficient income but you have lots of equity and good credit, then what you need is a home equity loan. The best home equity loan hands-down is [and don’t be scared about this term]: a reverse mortgage!

Why is a reverse mortgage the best home equity loan?

A reverse mortgage is the best home equity loan because the rate is reasonable, the fees are very low, the loan is with a reputable and trustworthy institutional lender, and best of all, you are not required to make any payments!

What is the catch with a reverse mortgage?

• You can’t even be considered for a reverse mortgage unless you are 55 years or older

• You need to have a lot of equity in your home [i.e. a very small mortgage or no mortgage at all]

• You must be prepared to keep it for at least five years. Although the penalty goes down considerably after three years.

• You need to show that you have sufficient income to cover the other costs of living such as property taxes, utilities, insurance, food.

What if I don’t qualify for a reverse mortgage?

There are other home equity loans where you don’t need any or as much income to qualify. However, these get very expensive depending on the risk. Some other home equity loan options are:

• Private mortgages – these are loans given by private individual investors or groups of investors (mortgage investment companies MICs)
• Home equity liens – these are companies that will lend money using the home as security but not a mortgage per se