Realizing Peoples Needs

Realizing Peoples Needs. I found this in the Chicago Tribune. Written by Benny L. Kass. Benny is known for badmouthing Reverse Mortgages until now……..

Q: We need money to pay for some personal matters. We are both 65 years old and have a small mortgage on our house but have plenty of equity. We are considering either a reverse mortgage or a home equity line of credit. What do you recommend? What’s the difference between these two types of mortgage loans?

A: For a specific recommendation, please discuss your personal situation with your attorney or financial advisers. But I can provide some information.

Let me start by pointing out that there is one more option: refinancing your existing mortgage. As I write this, interest rates are low, although by the time this column appears in your newspaper, they may go up somewhat. That said, you should still discuss this option with your current lender; it may allow a refinance with little or no closing costs.

The Next Generation of Efficiency: The Race to 65%

The reverse mortgage — or home equity conversion mortgage — has no predetermined maturity date. The home equity line of credit typically limits the number of years you can take out the money. You have to participate in pre-loan counseling to get the reverse mortgage; there is no such requirement for a HELOC. That means you take your own risks, without the help of experts advising you regarding your financial situation.

Interest rate caps are significantly different. According to information obtained from the National Reverse Mortgage Association, the reverse mortgage cap is either 5 or 10 percent above the starting rate. HELOC caps can range from 10 to 18 percent above the initial rate.

If you have a HELOC, you may be advised that your loan is frozen, or even canceled. The line of credit for the reverse mortgage can never be reduced, frozen or canceled.

And perhaps the most significant difference is this: If you obtain an adjustable-rate reverse mortgage, the unused amount grows each and every month, so that the balance you can tap into gets larger month after month. This is called credit line growth, and as soon as I develop a better understanding of this, I will explain it in a future column. (For now, search “credit line growth” on the internet.) The HELOC does not grow.

I often write that a reverse mortgage should be considered a last resort. But everyone has different needs and objectives.

Analyze all three lending options to find out which one fits best for you.