Do you own a home? Are you thinking about tapping into your home equity to access funds? You could go the traditional route with a home equity line of credit, or HELOC. However, for seniors 62 years of age and older, an HELOC is not your only option. If you fall into this age group, a home equity conversion mortgage line of credit, or HECM, might be a better solution.
An HECM loan is perhaps known better as a reverse mortgage and carries a number of advantages over a traditional HELOC. Don’t be so quick to dismiss a reverse mortgage; you could miss out on the advantages of an HECM line of credit. An HECM, or reverse mortgage, is an insured loan backed by the Federal Housing Administration that allows seniors aged 62 and older to gain access to a portion of the equity in their home in order to receive tax-free funds without the obligation of monthly mortgage payments.
Flexible Payment Options
Both an HELOC and an HECM allow you to borrow funds against your home’s equity. However, a traditional HELOC requires you to not only pay property taxes on your property, but also requires you to make monthly principle payments and interest until the amount of the loan is met. What this means is you will end up paying significantly more than the original loan amount.
In contrast, an HECM flexible line of credit lets you pay back whatever amount you like each month. In fact, you aren’t required to make a monthly payment at all. As with a traditional HELOC, you still must pay for insurance, property taxes, and upkeep on the home, but you can pay as little or as much as you choose, whenever you choose, on your HECM loan. You should also keep in mind that there will be interest charges relating to the loan amount. However, you are free to pay off the loan as quickly as you choose with no prepayment penalty. You can pay off the loan at any time, so long as it is paid in full after you no longer reside in the home. Typically, many who take out a reverse mortgage choose to simply pay off the loan with proceeds from the sale of the home.
Benefits of an HECM
For many seniors in the Kissing Tree 55 + community, an HECM may be exactly what you are looking for.
- No reset period – An HECM does not have a reset period like a HELC does. This gives you more flexibility and freedom.
- Pay what you want when you want – As long as the loan is paid off after you no longer live in the house, you are free to pay whenever you choose.
- Security – An HECM loan is backed by the FHA. This means, while the home still serves as collateral, if the loan balance exceeds the value of your home, you are not responsible for the excess amount.
- Can’t be canceled – As long as you meet your loan obligations, your HECM loan can’t be reduced or canceled. It’s there if you need it.
- Credit Line Increase – Any portion of an HECM loan you don’t use grows over time, giving you more available funds.
You may qualify for an HECM loan if you meet these requirements:
- You are 62 or older
- You own your home
- It is your primary residence
Even if you have an existing mortgage, HELOC, or other home equity loan, you may still be eligible. Condominiums also may qualify for an HECM loan. Check with a certified reverse mortgage lender to learn more.