Reverse Mortgage vs Home Equity Line of Credit

There are several reasons a reverse mortgage may be more desirable to the average senior, not the least of which is the ability to no longer make a monthly mortgage payment. Let’s discuss a few here. Why does a senior or anyone else for that matter get a home equity line of credit? They want the comfort of knowing they have access to money if they need it. It makes it easy to tap into their equity should the need arise. There are a few downsides to a HELOC. Obviously there is the need to make a monthly payment but there is also the worry that the bank may limit the amount of money you have access to. They may just send you a letter out of the blue and let you know that they are cutting the line in half or even closing it. A HELOC is always adjustable and have a rate cap around 18% not to mention the need for good credit and income in order to qualify.

Now let’s talk about the reverse and what it can do that the HELOC can’t. A reverse mortgage can be set up to payout however the borrower wants. It can be a lump sum, term payment, tenure payment, line of credit or any combination of the three. Even if you set up the reverse as a line of credit, the adjustable rate has a cap around 13% so right there it beats the HELOC. Also, a reverse mortgage line of credit can never be closed or lowered. Oh and did I mention that it has a growth rate? Yes it does. The reverse mortgage line of credit has a growth rate that always matches the current adjustable rate. So if the rate is 4% that means you owe 4% on anything you’ve spent but you’re gaining at 4% on the credit line. If the rates go up to 6%, you owe 6% on what you’ve spent but you’re gaining 6% on the credit line. You are also only being charged interest on what has been spent. If you have the line of credit, tenure or term payment you are only accruing interest debt on the money as you spend it. With the reverse there are no payments due until the last borrower no longer lives in the home as their primary residence. They only things that need to be paid are the homeowners insurance and property taxes. With all of those reasons and no credit, health or income requirements the reverse seems to be the way to go for seniors all over the country who want financial security and ability to make the “golden years” truly golden

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