HECM LINE OF CREDIT - The advantage of growing your money with an FHA HECM line of credit is an important part of the reverse mortgage. It is an adjustable rate loan. There is a FIXED HECM, but the FIXED HECM does not offer a line of credit. Additionally, the FIXED HECM is a cash-out transaction offering only one draw at closing. The amount of cash at closing is lower than with the FHA adjustable rate HECM because there is only ONE draw for borrowers, not TWO as with the FHA HECM adjustable. And the FHA FIXED cash out is significantly less. You will be provided with an amortization schedule showing the growth rate on your line of credit based on the rate proved.
If rates stay the same, your money grows at that interest rate. But since it's an adjustable, rates can go down, but your money is still growing exponentially!
MANY PEOPLE CONSIDER HELOCS FOR MONEY. WHAT'S THE DIFFERENCE? ARE THERE ADVANTAGES WITH THE HECM VS A HELOC?
Here are some of the advantages of the HECM line of credit vs the HELOC/Home Equity Line of Credit:
* With a HELOC, you need a certain credit score to qualify plus you will have to make monthly mortgage payments. Your credit is reviewed with a HECM, but there is no minimum credit score requirement and no monthly mortgage payments required.
* While both the reverse mortgage line of credit and the conventional HELOC only accrue interest on monies drawn, only the reverse mortgage line of credit has a growth rate on the unused portion of funds.
* The FHA HECM unused line of credit grows over time at the compounding interest rate charged on the loan plus 1/2%. This gives borrowers greater borrowing power as the amount of money available for future access grows larger year after year. For example, if you took out the HECM line of credit at age 62 or 65 and left it untouched for 10 or 15 years, your money would have grown considerably. At that point, you can withdraw all or part of your remaining line of credit. If you do not use the line, it is not owed. And, of course, you can use some of the line of credit and leave some funds to keep them growing for your future!
* With a HELOC, the line of credit can be frozen by the lender at will so you can no longer access funds. This can occur if there is a reduction in the credit limit on your home equity line. The HECM line of credit cannot be closed at the lender's discretion and remains open so the funds are there when you need them. When is the line closed? The HECM line of credit stays open until the last HECM borrower no longer resides in the home as their primary residence.
* Payments to the reverse mortgage are placed back into the line of credit so the line has more funds available to the borrower.
NOTE: With the FHA HECM, there are two draws of proceeds, one at closing, the second 365 days after funding. The second draw of funds is set up as a line of credit that you can draw from after the 365 days OR let it remain for the future.
Financial planners used to give reverse mortgages a bad rap. But reverse mortgages can be a valuable financial planning tool which can help retirees cover many of their lifestyle expenses and enhance their retirement portfolios. Financial planners often discuss with their clients portfolio distribution and portfolio sustainability as well as housing wealth. For those who still work, being ready for retirement should include how much of your wealth is wrapped up in home equity as an asset. The question is, how much of your retirement income is coming from your 401(k) or other securities portfolios?
For those retired clients who draw on their portfolios for income, portfolio exhaustion has to be considered as well as using home equity as an asset, another source of retirement income along with other assets. Speak with your financial advisor and get their professional opinion on how your home equity might enhance your retirement portfolio. Reverse mortgages have been used in creative ways to add to a client's portfolio Ask for a free proposal that you can share with your financial planner.
Rather than obtaining your reverse mortgage out of sheer need or waiting till you are older, some borrowers take our the reverse mortgage to avoid future financial surprises. Additionally, taking out the HECM sooner than later maximizes the growth of the HECM line of credit for those with significant equity and a good size line of credit. After time, the line of credit and monies available would be larger, therefore, the line of credit is a great option for those not needing the money right away.
HUD has designed the reverse mortgage to ensure borrowers have all the resources they need to fulfill all the requirements of the loan as it progresses throughout their lifetime. Financial planners who study income plans often see the benefits of reverse mortgages and the advantages of using home equity for retirement income.
There is a reverse mortgage proprietary product for higher-value homes with a line of credit that is different from the FHA HECM. It is not available in every state, however. Ask your reverse mortgage professional to provide a proposal showing the FHA HECM and the Proprietary Reverse Mortgage jumbo products for your comparison.
Since this loan can be tailored to YOUR financial needs, we will work up different scenarios so you can choose which one works best for you. Cash out, line of credit, monthly draw or a combination of all three. Advisors Mortgage is here to answer your questions and concerns. Available for download is our flier about reverse mortgage for financial planners. Be among the many who enhanced their retirement with a reverse mortgage.
When it comes to financial planning, Dr. Wade Pfau's comments about home equity and reverse mortgages are helpful.
"Home equity represents about 66% of the average retired American’s wealth, so using it as a potential source of funds if you’re strapped for cash makes sense — even if costs are higher now."
“Research in the financial planning profession consistently shows that reverse mortgages can improve retirement planning outcomes,” said Pfau, who has written a book about the products. “It helps to have another source of funds outside an investment portfolio that can provide a backstop for people.”
ADVISORS MORTGAGE GROUP, LLC., WE TAILOR LOANS TO MEET YOUR NEEDS -Branch NMLS 1833015, 3265 Merrick Road, Wantagh, NY 11793 - Phone: 888-843-9797 or direct: 631-804-9044 - Licensing: CA: Licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act; FL; GA Residential Mortgage Licensee; NJ: Licensed by the New Jersey Department of Banking and Insurance; Licensed Mortgage Banker –OH; PA; TX. www.nmlsconsumeraccess.org