We have talked about the line of credit product option multiple times in the last few years, but with any program that you may want to get involved with, it requires more education before just jumping into it. Let’s discuss the benefits of the line of credit versus why you may not want to get a line of credit.
One of the basic protections of the line of credit is locking in a home value at the time of closing. This does not mean your home will always appraise at this value or be worth that much. However, it does mean that, even if you home value drops, your line of credit will not be affected. In fact, the amount available in your line of credit will continue to grow year over year when left untouched. Let’s say you take out a reverse mortgage today. In this example, you are 65, your home is appraised at $200,000, and you do not have a mortgage. You decide on the line of credit option and use our online calculator to determine that you can get a line of credit at approximately $110,000. Now lets say that the housing market takes a slight tumble in the coming years and home values in your area start to decline. The unused funds in your line of credit will grow every year based on the interest rate set at closing. The amount of the line of credit is based on the appraised value of the home at the time of closing, no matter how bad the housing market is or how low your home value dips.
Yes, you read that right, the amount of available funds in your line of credit actually grows year over year based on the interest rate. This is something that a traditional HELOC does not give you. If you leave the money in the line and don’t use it, that money will grow in value year over year, ready to be used if a need arises. It can give you the greatest flexibility out of all of the reverse mortgage products.
One of the draw backs to the line of credit is the adjustable rate feature. It is based on the LIBOR, which does adjust. Some people are comfortable with an adjustable rate, while some are not. If you are not comfortable with an adjustable rate, the best reverse mortgage option for you might be a fixed rate reverse mortgage.
Unlike the line of credit option, the fixed rate reverse mortgage has to be taken out in a lump sum manner and there are no additional funds to be drawn. The same rules apply for qualification and loan repayment.
Many financial experts are recommending the line of credit option as an easy way to help with your retirement portfolio. But with any large scale financial plan, it is always best to talk with a financial advisor as everyone’s situation is unique. If a reverse mortgage is not something that interests you, we also offer traditional refinancing in most states, so give us a call and we can help find an option that can suit you best.