Category: Line of Credit

The HECM Reverse Mortgage Line of Credit, Explained

reverse mortgage advisor connecticutThe HECM Reverse Mortgage Line of Credit is still relatively new, and to this day many within the financial and retirement industries haven’t fully grasped how it works.  Well, they need to get on board because consumers are interested – and they should be.  Here’s why..

First, what is a line of credit?  Simply put, a line of credit are funds available to you through a financial institution that you can access as needed, or not at all if the need doesn’t arise.  Interest is not acquired if the funds are not used.  This makes line of credit options excellent safety nets, especially for the purpose of creative retirement strategy.

When looking at a HECM Reverse Mortgage Line of Credit, the two are obviously intertwined, meaning the qualification requirements for any reverse mortgage still apply.  These are: age 62 and over, using your primary residence for the loan, this home must meet HUD’s guidelines and needs to be either paid off or have substantial equity, and the borrower must have the financial capability to continue to pay homeowners insurance, property taxes, and the like. Because there are various options to receive the payout from a HECM reverse mortgage, the line of credit is only one of them.

When you have a HECM reverse mortgage line of credit, you have money that is available to you — but you only pay interest on the money you withdraw – and just like any reverse mortgage, you don’t pay anything until the loan comes due.  This means the reverse mortgage line of credit can act as an excellent back up source of funds or can be used for retirement fun, whether it be vacation, spoiling grandchildren, or knowing you have the funds available when you’re ready to take on new ventures.

There are other benefits though.  This line of credit is pretty astounding beyond just being a safety net.

Growth: Not only are you not paying interest, but your untouched reverse mortgage line of credit can grow in value. Money in a reverse mortgage line of credit grows at the same rate as the interest rate on the loan PLUS 1.25% monthly.  So, if the interest rate on your reverse mortgage is 2.50%, then your line of credit will grow at 3.75% (2.50% + 1.25%).

Unique: This growth is unique to reverse mortgage lines of credit — a HELOC for example does not grow.

Hedge Against Falling House Prices: The growth in a reverse mortgage line of credit is guaranteed — without withdrawals, your line of credit is guaranteed to grow.  This means you lock in the current value of your home without taking out an interest accruing loan.

Pretty great, isn’t it?

Sara Cornwall is a local Reverse Mortgage Advisor serving the entire state of Connecticut. Contact Sara and learn if reverse mortgage is right for you.

What Exactly Is A Reverse Mortgage Line of Credit?

reverse mortgage advisor connecticutReverse mortgages aren’t new, but the shifting perspective on them certainly is.  After undergoing various regulation changes the past couple years, everyone is taking a second look.  Real estate agents are seeking more information on the Reverse Mortgage for Purchase so they can offer this option to their senior buyers.  Adult children are realizing the myths they’d heard over the years are just that – myths.  And now retirement experts are suggesting adding home equity into the equation when helping retirees plan for their golden years.

Reverse mortgages are very versatile when it comes to ways to access funds, but this article is going to focus on one that is quickly gaining in popularity – the HECM Reverse Mortgage Line of Credit.

What is a Reverse Mortgage Line of Credit?

The line of credit option allows homeowners to tap into the equity of their home and have access to the funds whenever needed, but unlike a lump sum or monthly payments, they don’t have to withdraw any funds at all and can keep it as a safety net.  Or the funds can be used when needed to supplement retirement income.  The options are endless. The best part?  There are no loan payments and the loan does not come due until the last borrower leaves the home, or if property taxes or homeowners insurance become grossly delinquent.

How is the amount on a line of credit determined?

Just like all reverse mortgages, the amount is determined based on the age of the borrower and the appraised value of the home.  The older the borrower and the more the home is worth, the larger the line of credit will initially be.  Borrowers also are not required to use all the available equity in their home as the line of credit, and they have options to combine it with other funding sources such as monthly installments or even a home purchase.

Will the line of credit funding amount ever change?  

Yes and no.  Unlike other reverse mortgage funding options, a line of credit will increase at a compounding rate determine by HUD – and on the flip side, it will never decrease even if home values depreciate.

Why get a Line of Credit now rather than wait until I’m sure I need it?  

Retirement experts are recommending to many clients to include the reverse mortgage line of credit in their retirement portfolios from the get-go for various reasons.  One, the housing market is strong right now and appraised home values are high.  Two, as the years go on, these programs change and it may not be available in 10 years, but anyone who has an already established line of credit will always be ‘grandfathered’ into the program, even if it is eliminated in the future.  And three, in the case of economic downturn where investments are affected, having the line of credit immediately available can be a future safety net.

Is a Reverse Mortgage Line of Credit FHA Insured?

Typically yes, as long you are working with a reputable reverse mortgage lender, the line of credit will be FHA insured just like any other reverse mortgage product.  This means there are protections and guarantees in place for the borrower that will never falter.

Sara Cornwall is a local Reverse Mortgage Advisor serving the entire state of Connecticut. Contact Sara and learn if reverse mortgage is right for you.