HECM Line of Credit - The Advantage of Growing Your Money
Having an Advantage That Works
Not having to pay any monthly mortgage payments on the HECM is a great advantage. But what's even better is the LOC, Line of Credit feature. You can draw on your credit line whenever the need arises whether to enjoy life more or just to pay some bills. Here are some of the advantages of the HECM line of credit as compared to a HELOC/Home Equity Line of Credit:
Both the reverse mortgage line of credit and the conventional HELOC only accrue interest on monies drawn. But only the reverse mortgage line of credit has a growth rate on the unused portion of funds. The unused HECM 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. So, 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. (On the FHA HECM, the second draw of funds from the line of credit would occur 365 days after the funding of your loan).
Another advantage to the program is that the HECM line of credit stays open and cannot be closed at the lender's discretion. The line of credit stays open so the funds are there when you need them.
Reverse Mortgage Cons
HECM = Higher Closing Costs
Can Reduce Heirs' Inheritance
Can Reduce Heirs' Inheritance
- A Reverse Mortgage has all the typical closing costs one finds with a typical FHA mortgage, but FHA HECM mortgage insurance premium fees are higher. The HECM has FHA mortgage insurance added at the outset of the loan and ongoing throughout the life of the loan. These are not out of pocket expenses. Instead, they are rolled up into the loan, but it's still a cost.
Can Reduce Heirs' Inheritance
Can Reduce Heirs' Inheritance
Can Reduce Heirs' Inheritance
- A Reverse mortgage can reduce your children's and grandchildren's inheritance because a reverse mortgage is a rising debt loan since no monthly mortgage payments are required, and the balance increases over time. Since there are no mortgage payments required, it is the opposite of a typical mortgage where equity increases as mortgage payments are made.
Tenants Will Have to Vacate
Can Reduce Heirs' Inheritance
Short-Term Reverses Don't Work
- If you have tenants or a relative or friend living with you who depends on you for their living arrangements and you pass away, they will have to vacate the premises unless they are over 62 years of age, named in the will, and want to obtain a loan or a reverse mortgage. When considering situations such as this, and depending on your relationships, a reverse mortgage might not be the best option..
Short-Term Reverses Don't Work
Your Home Must Be Your Primary
Short-Term Reverses Don't Work
- Selling your home can provide a greater return on your investment than a Reverse Mortgage. • Moving from your residence in less than five years makes a Reverse Mortgage impractical. It does not make good sense to use a Reverse Mortgage short term due to the closing costs which you have paid.
You COULD Lose Your Home!
Your Home Must Be Your Primary
Your Home Must Be Your Primary
- If you fail to pay your real estate taxes or homeowner's insurance or neglect to maintain your home, you could lose your home. You and the lender will ascertain if setting up a LESA, Life Expectancy Set Aside at the outset for taxes and insurance will be in your best interest. You will not have to worry about paying these; the lender, from the set aside, will pay them for you
Your Home Must Be Your Primary
Your Home Must Be Your Primary
Your Home Must Be Your Primary
- Borrowers are required to live in the home as their primary residence at least 6 months of the year. Also, if all borrowers leave the primary residence for a period exceeding 12 consecutive months, the reverse mortgage will become due and a demand for payment will be made by your lender. (Nursing home, assisted living, mental health facility, passing away.)
Selling the Home=Better Proceeds For You
Your Heirs May Want to Keep Your Home - BUT
Your Heirs May Want to Keep Your Home - BUT
- Selling your home can usually provide a greater return on your investment than a Reverse Mortgage by taking advantage of more of the home's equity that the reverse mortgage limits. You could sell your home to your children or sell the house outright and downsize to a more affordable home. Many senior homeowners rent after selling and find they have more spendable cash without having a mortgage ( if one was in place before).
Your Heirs May Want to Keep Your Home - BUT
Your Heirs May Want to Keep Your Home - BUT
Your Heirs May Want to Keep Your Home - BUT
- If your heirs wish to benefit from your home after your passing, they can sell the property and keep the remaining equity or they can get their own mortgage on the home. If your heirs wish to keep the property, they can repay the amount that is owed or 95% of the current value, whichever is less. In selling, the lender will accept the proceeds from the sale, and FHA will cover the remaining loan balance.
Medicaid Eligibility May Be Affected
Your Heirs May Want to Keep Your Home - BUT
Medicaid Eligibility May Be Affected
- Medicaid and other financial assistance programs may be affected, and you may not qualify for benefits unless you spend down your Reverse Mortgage proceeds each and every month. Your reverse mortgage is not considered income but can be viewed as assets. (Check with your attorney and Medicaid to discuss Medicaid's parameters). ..
When Not to Get a Reverse Mortgage
Things to Consider
• An equity loan (if you qualify) may be a cheaper way of getting cash out of
your home as closing costs will be lower.
• If your primary goal is fixing up your home and a community loan can provide
adequate funds, a Reverse Mortgage is not your best option.
• If you are ill or disabled and assisted living or a nursing home is imminent, do
not choose a Reverse Mortgage. If you leave your premises for 12 consecutive month, the loan will be called and will need to be repaid.
• If your financial situation will preclude you from paying real estate taxes,
insurance, and maintaining your home, forego a Reverse Mortgage. You don't want to get into trouble. If possible, opt for a LESA, a Life Expectancy Set Aside so the lender will take care of paying them for you throughout your loan. (Refer to FAQ-Questions People Ask for more info.)
• If your children invite you to live in their home and spend your remaining years with them. Many seniors find themselves able to move in with their children and also benefit their heirs in doing so.
HECM COUNSELING IS REQUIRED. Your counselor will aid you in determining how well a reverse mortgage will work for you and go over alternatives. The reverse mortgage cannot proceed without this important HUD-required safeguard.
Everything in life deserves thought.
Whether it's a mortgage or another important matter that requires a decision, thinking deeply has to be part of the equation. Thoroughly comparing the advantages and disadvantages of something will usually produce a good decision. What is good for one person may not be good for someone else. It all has to do with YOUR perspective, the way you look at things, and what best works for you. We all see the world differently. We weigh our circumstances and consider our options. Consider the reverse mortgage. It might not be for you, then again, it just might work to your benefit.
Questions? Call Advisors Mortgage! Advisors Mortgage: 888-843-9797 or 631-804-9044
Asking the Right Questions
Asking the right questions can help you determine if a Reverse Mortgage is the right vehicle for you. After all, a Reverse Mortgage is not for everyone.
* Am I going to stay in my home for the foreseeable future?
* Am I wanting to leave my home to my children and grand children? is a reverse mortgage a good idea?
* Do I understand the expenses of getting a reverse mortgage?
* Am I concerned for a relative or friend whose living arrangements will change when I pass away?
* Am I able to maintain my home in an adequate fashion and pay my taxes and insurance or would I run into trouble? Do I understand that I could lose my home if I fail to pay my taxes and my property insurance?
* Have I considered other options besides a reverse mortgage?
* How would my life change if I could get rid of my mortgage payments or have money left over each month to do the things I've been wanting to do? Will the reverse mortgage change my life enough to warrant getting a reverse mortgage?
All these questions are legitimate questions senior borrowers might consider. Consult with family and trusted advisors. A free quote will give you the numbers and figures so you will see firsthand how much money is available to you.
