About 30% of senior households owe money on a mortgage. The median amount owed is $68,500. If you own your home, you have an asset that you can leverage to secure a loan. You can also get a good deal if you decide to refinance your mortgage since rates are lower now.
Many lenders consider income when deciding to lend money. But this isn’t effective when securing loans for seniors on social security.
This is when it’s important to have assets that can cover the loan. For many seniors, this asset is their home. We have four ways you can secure a loan as a senior citizen.
1. Home Equity Loan
If you own your home, you probably have some equity built up in it. You can borrow against this equity to have access to cash.
There’s a catch; you need to leave about 20% of your equity in the home when you borrow. So this may limit how large of a loan you can take out.
There have also been recent changes in tax law that no longer allow you to deduct the interest of these loans on your taxes. The one exception is if you take out the loan to make improvements upon your home. If you have grandchildren coming to visit and need to update your house, this might be a good option.
2. Cash-Out Refinance Loan
Instead of borrowing against your home’s equity, you can refinance for more than what you owe, but less than the home’s total value. The extra money you borrow is a secured cash loan.
This type of loan will increase the amount of money you owe on your home. It will also increase the time period until you pay your loans off and own your home outright.
To choose between a home equity loan and cash refinance loan, you’ll want to compare interest rates and closing costs.
3. Reverse Mortgage Loan
This type of loan is similar to the previous two; it uses the value of your home to give you access to cash now. Once agreeing to the loan, you’ll either receive one lump sum or structured payments.
The difference is when this loan comes due. Unlike the previous two loans, you only pay this loan back when you leave the home or when you pass away.
4. Personal Loans
You can apply for either a secured or unsecured personal loan. You’ll want to have a good credit score and a decent amount of assets saved. Though if you have bad credit, you can find a helpful article that will help you obtain a loan too.
The main difference between a secured and unsecured loan is the requirement of collateral. A secured loan requires a personal asset as security for the lender. If you default on the loan, the lender can take possession of the asset to recoup their loss.
An unsecured loan doesn’t have this stipulation.
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Take Advantage of These Loans for Seniors on Social Security
If you own your home or are making payments on a mortgage, then you have several options available to you. When it comes to securing loans for seniors on social security, it’s better to focus on assets than income.
Check out the senior living section of our blog for more helpful life tips like the ones you found here.