Interest-only mortgages and reverse mortgages are two different types of loans that can be used to access the equity in your home. Here are some of the differences between the two:
Interest-Only Mortgages
An interest-only mortgage is a type of mortgage that allows you to pay only the interest on the loan for a certain period of time, typically 5-10 years. After the interest-only period, you will need to start making payments on both the principal and interest. Interest-only mortgages can be beneficial for borrowers who want to keep their monthly payments low during the interest-only period.
Here are some of the differences between interest-only mortgages and reverse mortgages:
- Interest accrual: With an interest-only mortgage, interest accrues on the entire loan balance, which is taken at the loan’s closing. With a reverse mortgage, interest accrues on the amount of money that has been borrowed.
- Repayment terms: With an interest-only mortgage, you will need to start making payments on both the principal and interest after the interest-only period. With a reverse mortgage, you do not need to make any payments until you sell your home or pass away.
- Who should opt for an interest-only mortgage over a reverse mortgage?: Interest-only mortgages can be beneficial for borrowers who want to keep their monthly payments low during the interest-only period. Reverse mortgages can be beneficial for seniors who want to access the equity in their homes without having to sell their homes or move out.
When deciding between an interest-only mortgage and a reverse mortgage, it is important to carefully consider the differences between the two and choose the option that best meets your individual needs.