HECM versus HELOC. Home equity options is becoming an important asset as part of more and more retirement plans.
Fortunately for homeowners 62 and older, there’s a new generation of Home Equity Conversion Mortgage (HECMs) that have all the benefits of reverse mortgage. Here we will compare and offer compelling advantages compared to traditional home equity line of credit (HELOC). Watch Video on line of credit.
A Reverse Mortgage is simply a slang word for the FHA insured Home Equity Conversion Mortgage (HECM) loan—commonly used to pay off their mortgage and improve their overall monthly cash flow.
But over the years, financial advisors and other trusted professionals began to realize that a reverse mortgage (HECM) could be an important, effective part of a sound and rewarding retirement funding strategy.
For example, the proceeds from a reverse mortgage can help you avoid tapping into your nest egg in the early years of retirement—which can extend retirement income, help you maintain your lifestyle, maximize your Social Security benefits, * and live the retirement you’d hoped for. And that’s just one way to use this financial tool.
How can I use the money? You can choose to take your funds as a lump sum, line of credit, monthly installments, or a combination of these. Reverse mortgage loan proceeds can be used in a variety of ways, such as:
Supplement your retirement income to help preserve your savings, pay off your existing mortgage to free up more cash each month, generate funds to help cover every day (or unplanned) expenses, cover health care costs, make home renovations or upgrades, Fund a major purchase, such as a new home or vehicle.
Reverse Mortgage (HECM) Line of Credit Option.
This option is growing in popularity among retirement-age homeowners, because it offers certain advantages as compared to a traditional Home Equity Line of Credit (HELOC).
Today’s Reverse Mortgage (HECM) with Line of Credit has these feature that a HELOC or home equity line of credit doesn’t have. Borrower retains home ownership, no monthly repayments required, Line of credit growth, Line of credit cannot be reduced or revoked by the lender, if you meet all your obligations under the loan.
Borrower is responsible for property taxes, homeowner’s insurance, and property maintenance. A reverse mortgage is a home-secured debt payable upon default or a maturity event.
With a Reverse Mortgage (HECM) Line of Credit, the amount available to the borrower can increase over time. The growth applies to the unused funds remaining in the borrower’s credit line. The less the borrower takes out up front, the more will be available later.
The typical HELOC has a 10 draw period and then the amount which is typically paid interest only is due in full. Many people are told they can always refinance it. But most weren’t retired and now they are; so credit qualifying is a problem and many are turned down. Also a HELOC from a bank can have the amount shrunk if for instance the economy turns bad.