Definition§
Home Equity Conversion refers to the process through which homeowners convert the accumulated equity in their home into cash. This conversion is generally done using financial products like Home Equity Loans or Reverse Annuity Mortgages, allowing homeowners to access funds while often still living in their homes.
Examples§
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Reverse Mortgage: This is a loan available to homeowners, typically aged 62 or older, which allows them to convert part of the equity in their home into cash. Payments are made to the homeowner, and the loan is repaid when the homeowner sells the home or passes away.
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Home Equity Loan: This type of loan enables homeowners to borrow a lump sum against the equity in their home, with fixed monthly payments of principal and interest.
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Home Equity Line of Credit (HELOC): This works like a credit card where homeowners can draw funds as needed up to a certain limit and repay them over time.
Frequently Asked Questions§
What is the main advantage of home equity conversion?§
The main advantage is that it allows homeowners to access cash for expenses such as medical bills, home renovations, or retirement without selling their home.
Who is eligible for a reverse mortgage?§
Typically, reverse mortgages are available for homeowners aged 62 and above who have significant equity in their home.
How does a home equity loan differ from a HELOC?§
A home equity loan provides a lump sum amount with fixed monthly payments, whereas a HELOC offers a credit line with variable interest rates, allowing for flexible withdrawal and repayment.
Can I lose my home with a reverse mortgage?§
As long as you comply with the loan terms, such as paying property taxes and insurance, you can live in your home. However, the loan must be repaid when you no longer live in the home.
Is the cash received from a reverse mortgage taxable?§
No, the funds received from a reverse mortgage are considered loan proceeds and are not subject to income tax.
Related Terms§
- Home Equity Loan: A type of loan where the homeowner borrows against the equity in their home and receives a lump sum, usually with a fixed interest rate.
- Reverse Annuity Mortgage: Another name for a reverse mortgage, providing regular payments to the homeowner based on the home’s equity.
Online References§
Suggested Books for Further Studies§
- “Reverse Mortgages For Dummies” by Sarah Glendon Lyons
- “The Home Equity Conversion Mortgage Booklet” by Thomas A. Murawski
- “The Reverse Mortgage Guide for Seniors” by Daniel Bortz
Fundamentals of Home Equity Conversion: Financial Instruments Basics Quiz§
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