The HECM Line of Credit - A Line of Credit that GROWS!
An Advantage That is PRO!
A reverse mortgage can put you in a good spot with no monthly mortgage payments. But what's even better is the 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 HELOC only accrue interest on monies drawn. However, only the reverse mortgage line of credit has a growth rate applied to the unused portion of funds. The unused HECM line of credit grows over time at the current compounding interest rate charged on the loan plus 1/2% added. The line of credit is available for future needs and continues to grows larger year after year. So, for example, if you took out the HECM line of credit at age 62 and left it untouched for 10 or 15 years, your money would have grown considerably (depending on the original amount in the line). 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! (On the FHA HECM, the second draw of funds from the line of credit would occur 365 days after the funding of your loan. The growth rate on those funds also begins 3 days after you close. So one year later, there will be more funds available to you and so on).
Another advantage to the line of credit option is that the HECM line of credit stays open and cannot be closed at the lender's discretion. The line of credit remains open so the funds are there when you need them.
Reverse Mortgage Cons
HECM = Higher Closing Costs
- 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 Your 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 there is accumulating interest on the loan so the balance increases over time. It is the opposite of a typical mortgage where equity in the home increases as mortgage payments are made.
Tenants Will Have to Vacate
Short-Term Reverses Don't Work
- If you have tenants or relatives living with you, and should you pass away, they will have to pay off the HECM loan balance in order to remain in the home.
- Your heirs can also choose to sell the home and keep the remaining equity after paying the lender. They would pay the full loan balance or 95 percent of the home’s appraised value, whichever is less.
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 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. (Ex. Nursing home, assisted living, mental health facility).
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 appraised value, whichever is less. In selling, the lender will accept the 95% 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 administrator to discuss Medicaid's parameters).
When Not to Get a Reverse Mortgage
Things to Consider
• An equity loan may be a cheaper way of getting cash out of
your home as closing costs will be lower. But there will be a monthly mortgage payment.
• If your primary goal is fixing up your house and a community loan can provide adequate funds, that may be a better 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 months and no other borrower remains, the loan will be due.
• The HECM, FHA reverse mortgage can be an expensive loan due to the 2% upfront mortgage insurance premium. This 2% fee is multiplied times the appraised valued on the home. Even though this is financed along with most of the closing costs, it is still a cost.
Eligibility for Medicaid: Reverse mortgages do not affect Medicare or Social Security. But they can affect your eligibility for Medicaid benefits. Check with your financial planner or Medicaid administrator.
• If your children invite you to move into their home and spend your remaining years with them, this might be an option. Many seniors find themselves able to move in with their children and benefit their heirs by doing so.
HECM COUNSELING IS REQUIRED. Your HUD-approved reverse mortgage counselor will aid you in determining how well a reverse mortgage will work for you and will review your 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 and considering options 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 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, but then again, it just might work to your benefit.
Questions? 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?
* Do I want to leave my home to my children and grandchildren?
* Am I concerned about a relative or friend or renter whose living arrangements will change when I pass away due to me having a reverse mortgage?
* Am I able to maintain my home and pay my taxes and insurance if I previously had these in escrow at my mortgage company? Do I understand that I could lose my home if I fail to pay my taxes and my property insurance?
* If I have no mortgage and need money for home improvements, perhaps $20-30,000, does a reverse mortgage make sense?
* Have I considered alternate options other than a reverse mortgage?
* How would my life change if I could get rid of my mortgage payments and have money left over each month to do the things I've been wanting to do?
* Will the reverse mortgage change my life enough for me 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.
Contact KATHIE ADLER 888-843-9797 or 631-804-9044
