home equity

3 ways retirees can tap into their home equity

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Acquire cash when you refinance
Acquire cash when you refinance | fizkes/Shutterstock.com

Acquire cash when you refinance

When you apply for conventional cash-out refinancing, you replace your first mortgage plus get a lump sum of money to help you out with your financial needs. Your new loan is for a larger amount than your existing home loan and ideally at a lower interest rate.

To qualify for this option, a retiree must meet certain credit and income requirements, says Steven Sass, a research economist for the Center for Retirement Research at Boston University in Chestnut Hill, Massachusetts. These requirements are much stricter than those for a reverse mortgage loan, he says.

You also pay closing costs, which can run into the thousands of dollars.

"What a borrower can get is largely determined by the value of the house (as collateral), the borrower's ability to repay the debt and the lender's maximum loan-to-value (ratio) on a refi," Sass says. "If you sell your home, you must pay the loan back and you'll have much less equity when you do sell."

Loan-to-value ratio is the current mortgage amount divided by the appraised value to a maximum amount of about 75 percent to 85 percent.

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HELOC vs. reverse mortgage?

Dear Senior Living Adviser, If you have a home equity line of credit , or HELOC, for $150,000 with no balance on it, should you use it instead of a reverse mortgage? Which is a better way to save the assets if there is... Read more


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