• Reverse Mortgage Line of Credit Compared to a HELOC

  • by Kristen Curzytek

If you are looking for some extra cash to have on hand in case of an emergency or just to have a safety net in your golden years, you may be looking at a Home Equity Line of Credit (HELOC) or a line of credit with a Reverse Mortgage. Before you make a decision, let’s take a look at what each of these options can offer you.

Home Equity Line of Credit

A home Equity line of credit (HELOC) is a form of revolving credit that uses your home as collateral. A lender usually sets a credit limit on the HELOC to be a percentage of what the home’s appraised value is and subtracting the balance from the existing mortgage. The lender may also take into consideration your ability to repay the loan by looking at several factors: income, debts and your other financial obligations.

A HELOC is a good option if you can meet all of the requirements. One of the requirements you need to meet with a HELOC is a good credit score. If your credit score is not up the standards of the bank, you will not be approved for the loan.  The bank also takes into consideration your income. Your income needs to be substantial enough to show the bank that you are capable of repaying the line of credit along with your other monthly obligations.  If you do not meet the standards the bank has set for the HELOC you cannot qualify for the loan. If you do happen to qualify for a HELOC, there are a few benefits of the loan. With a HELOC you may be able to write off the interest on your taxes. Another benefit of a HELOC is that closing costs are minimal, if you have good credit. A HELOC is also open ended, meaning you can borrow some money, pay it back, and borrow again as needed.

There are some disadvantages to a HELOC. With a HELOC your lender can reduce your credit limit, close your line of credit, or even call your loan to be due and payable in some instances. If that happens and you can’t come up with the funds needed to pay the loan, you could be forced to sell your home.

Another disadvantage of a HELOC, especially for someone who is on a fixed income, is the amount of money you can qualify for is based on your income. If your income is not strong, you may be limited to the amount of money you have access to. Another downside to a HELOC is it requires monthly payments. If you are retired living on a fixed income, it can be difficult to make that monthly payment.

Of all these disadvantages the biggest is many financial institutions are not lending the same amounts that they were before the housing market crash in 2008. Many banks have limited the amount of cash a home owner can access.

A HELOC is a good option for someone who has a steady income to be able to make payments. For example, June is 59, living off her late husband’s pension. She takes out a HELOC on her home to help pay some of her medical bills. However, because of her low income she did not get the amount she was looking for. June is still working, but only part time. The HELOC loan works for June because she has cash from her late husband’s pension and from her current job. However, if June didn’t have the steady income from her husband’s pension she wouldn’t know how she would afford to make the monthly payment to the HELOC. June might have been able to receive more cash from a Reverse Mortgage line of credit.

Line of Credit with a Reverse Mortgage

A line of credit with a Reverse Mortgage is one of the most popular choices with seniors when they receive a Reverse Mortgage. The line of credit option allows seniors to have more financial freedom by being able to access the cash at anytime. With the line of credit option your available credit (the amount of money you can use) will grow over time if unused.

A Reverse Mortgage is an excellent option for seniors because there are few restrictions. Some restrictions with a Reverse Mortgage are you must be at least 62 years old and your home must be your primary residence. This makes it is very easy for seniors to qualify for the program.

There are several advantages with a Reverse Mortgage, one of them is there are no credit checks. With a Reverse Mortgage there is no need to be concerned about whether your credit will be good enough to be approved; it is not a factor for qualifying. A credit check can be a big issue for seniors when trying to qualify for a HELOC.

Another advantage of a Reverse Mortgage is your income does not impact your ability to receive a Reverse Mortgage. As a matter of fact, you will be able to qualify for a Reverse Mortgage whether or not you have any income at all. This works for many seniors who are primary living off their Social Security.

One of the biggest advantages with a Reverse Mortgage is you will extinguish your current mortgage (if any). That means you will no longer have to worry about making a mortgage payment. Since a Reverse Mortgage does not require a payment, it also eliminates the worry of trying to make a payment. That is not something you can do with a HELOC because you have to continue to make a monthly payment to the HELOC. If you own your home free and clear, that means you will have access to more proceeds.

A line of credit with a Reverse Mortgage is a good option for someone who needs extra income unexpectedly. For example, Roy and his wife Mary have lived in their home since they got married 40 years ago. Recent economic issues have made it hard on them both since Roy is no longer getting his pension. They have a good size nest egg but have worries about paying for unexpected bills. A line of credit with a Reverse Mortgage works great for Roy and Mary because they do not have to worry about making a monthly payment. Plus, they have access to their line of credit from their Reverse Mortgage at any time they need it. Now Roy and Mary can continue to live in their home and they do not have to worry about making the mortgage payment or worrying about how to pay for their medical bills.

 

There are many advantages with a Reverse Mortgage that just make sense for a lot of seniors today. If you have any questions or want to learn more, call One Reverse Mortgage at (800)442-6828.