We have a 2-bedroom condo appraised (gov't) at $375K. Have about $75K remaining on our mortgage. We want to tap into our equity to remodel. We are thinking about having a cash-out loan with either a home equity loan attached (20-40K) or a line of credit. What would be our best option? I'm in early 60s, wife in late 50s. When would we be eligible for a reverse mortgage?

E. Z.
Seattle
Washington

Answer:

Either home equity loan or a home equity line of credit would work for you. Personally I would go with the former because of the fixed rate feature.

Both types of loans allow you to tap the equity in your home. The home equity loan is the traditional second mortgage: a loan in effect for a specific term, usually (but not always) fixed rate. You're approved for a certain amount, the lender gives you the check, and you get a repayment schedule.

But the home equity line of credit (HELOC) works like a credit line -- its operation resembles a charge card, like Visa or MasterCard. Most lines feature an "open" or "advance" period where you can borrow money, followed by a "repayment" period where your access is closed off, and any money you still owe must be repaid. However, there are some which are truly open-ended, and like charge cards, they don't have a fixed term, but can last for as long as you own your home. And HELOCs are almost always variable-rate, tied to the Prime Rate plus some margin, with at least a lifetime cap on rate movements. Currently the Prime Rate is 3.25% and has been steadily increasing since a low of 4.0% in June 2003.

You will be eligible for a reverse mortgage when the youngest spouse is 62 years old.

Rick Lanicek
Mercantile Mortgage Corp
17950 Preston Rd Ste 50
Dallas, TX 75252-5657
(972) 705-9721
(800) 256-0817 Ext 202
Mobile (214) 552-6125
eFax (972) 692-7260