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.