The HECM Line of Credit

Home Equity is a powerful asset, not to be ignored as a retirement funding solution. Use it to sustain and protect retirement income or to pay for emergencies and elder healthcare costs.

The Power of the HECM Line of Credit

When situations arise that require immediate access to liquid cash to fund elder health care costs, or other emergency needs, the HECM Line of Credit can provide just the right amount of peace-of-mind.

Watch This Important Video - "The Benefits of A Reverse Mortgage Line of Credit"

It's true! The Home Equity Conversion Mortgage can be used to create an optional Line of Credit that can be accessed when needed. From a financial planning perspective, a standby line of credit such as this is an important financial tool that can be used to offset untimely requirements to sell investments during a down market.

A common question is “why not utilize a traditional home equity line of credit (HELOC) provided through a local bank?” The simple answer is that the local bank HELOC can be called, cancelled, or decreased at any time should the value of the home decrease and the related loan-to-value rise with regard to the bank's lending criteria. The bank's HELOC loan will also likely require a payback schedule where potential foreclosure may occur if the required monthly payments are not made in accordance with the loan terms.

To further differentiate the two forms of home equity financing,ie., HELOC vs HECM, the HECM Home Equity Line of Credit is a non-recourse loan which does not require any monthly principal or interest mortgage payments and generally does not need to be repaid until such time as the last remaining mortgagor or eligible non-borrowing spouse dies, moves away, or sells the property. Additionally, the HECM line of credit can actually grow to enable access to additional funds which can be borrowed over time.

Although the HELOC may have minimal closing costs, when compared to industry-standard settlement charges associated with the HECM, it is commonly recognized that the advantages of the Home Equity Conversion Mortgage outweigh the associated loan closing costs. In other words, one may be relieved to know that the costs of "doing it" may bring many more advantages to the borrower than the costs associated with "not doing it".

Consider the difference between Net Worth and Available Wealth. While Net Worth is meaningful in the sense of dipslaying financial capacity, it does not reflect the availability of such assets. The use of Available Wealth, meaning the access to liquid assets, can be a significant offset to potential losses that originate from a forced sale of investments and equities to cover emergency cash requirements for elder healthcare and other needs.

Which is Better? Net Worth
or Available Wealth?

Download this fascinating white paper written by John Salter, PhD, CFP

 

General Requirements

You must be 62 years of age or older and:

  • Own the property outright or have a small mortgage balance
  • Occupy the property as your principal residence
  • Meet the guidelines of the HECM Financial Assessment analysis. Not be delinquent on any federal debt
  • Participate in a consumer information session given by an approved HECM counselor
The following eligible property types must meet all FHA property standards and flood insurance requirements:

  • Single family home or 1-4 unit home with one unit occupied by the borrower
  • U.S. Department of Housing and Urban Development (HUD) approved condominium
  • Manufactured home that meets FHA requirements

Among the Features

  • The ability to use your home equity to help maintain a more comfortable standard of living, in your own home.
  • Tax-free* loan proceeds you can use however you choose. * Not tax advice. Consult a tax professional.
  • No monthly principal and interest mortgage payments. If you qualify and have an existing mortgage or existing home equity loan, you can pay off such loans and improve your monthly cash flow, with no minimum monthly mortgage loan payments. NOTE: As the homeowner, you remain responsible for paying property taxes, homeowners insurance, homeowner’s association dues, and normal property upkeep and maintenance. Failure to do so could require payment of the loan in full.
  • Advantages of the HECM Line of Credit

  • Establish a Home Equity Line of Credit that cannot be reduced or eliminated because of a reduction in home market value
  • Have at-the-ready funds for emergencies and to pay for medical or long-term care costs
  • Never have to make a regular monthly mortgage payment on the loan
  • Sell the home at any time and keep any profits that exceed the loan balance
  • Never have to pay off the mortgage until the home is sold, or if the last borrower or eligible non-borrowing spouse either dies or moves away