Single Purpose Loans
Many states and communities offer special loans to help older homeowners who are struggling to live at home. These loans are designed to meet specific needs:
- Home repair and improvement loans: Borrowers get a one-time, lump-sum payment that can be used only for the specific repairs or improvements that each program allows.
- Property tax deferral loans: These programs allow older homeowners to defer payment of some or all of their property taxes until they move out of the home.
- Borrowers do not need to make payments on these single-purpose loans for as long as they continue to live in the home.
- Single purpose loans usually cost less than conventional home equity loans.
- You may not have to pay back the entire loan if you continue to live in the home for a certain period of time.
- These loans may not be available where you live.
- The remaining equity in your home may not be available to use for other needs.
Most programs require borrowers to be at least 65 years old. Often, only homeowners with low or moderate incomes can apply.
Conventional Home Equities
These loans can be useful if you are unsure how long you can continue to live at home or how much help you will need.
Conventional home equity loans can also help families who have other assets they do not want to sell right away. Until you have a good sense of what’s going on with your health situation, you can get extra funds from these loans without paying large fees or making drastic changes. There are two types of home equity loans:
- Home equity line of credit: This loan works like a credit card. You can borrow up to a certain limit for the life of the loan. During that time, you can withdraw money as needed. As you pay off the principal, your credit revolves and you can use it again.
- Home equity loan: You receive the money in a lump sum. You pay off the loan over a set amount of time, with a fixed interest rate and the same payments each month. With these loans, you will pay ‘points’, appraisal fees, closing costs, and loan initiation fees. Closing costs include attorney’s fees, fees for preparing and filing a mortgage, fees for title search, taxes, and insurance.
- If you qualify and your credit is good, you can get a home equity loan quickly. With a line of credit, you only pay interest on what you borrow.
- Since you pay for the loan from income, your home equity does not go down.
- You may not qualify for these types of loans. Lenders look carefully at your income, other debt, and credit history.
You must be able to make monthly payments on the home equity loan. If you can’t make these payments, you could lose your house.
When your line of credit ends, you must pay off the entire loan. A lender may not let you renew the loan.
Using a conventional home equity loan to solve cash-flow problems can be risky. If your health declines, monthly loan payments along with other expenses may become more than you can handle.