Many seniors find themselves trying to decide between the HECM (reverse mortgage) and a HELOC (home equity line of credit). This decision needs to be made by the borrower and often times varies from person to person. There is a large misnomer out there that a reverse mortgage is worse than a HELOC. I wanted to write this to explain the falsehood that statement. There is a lot about HELOC’s that many may not even know or consider. The fine print is never something that should be ignored.
An adjustable rate reverse mortgage can be set up with a line of credit that can be drawn on as needed or have scheduled payments set up. Much like a HELOC the reverse line of credit only charges you for what you use, no interest is charged on what is sitting in the credit line. Unlike the HELOC the amount left in the reverse line of credit is growing over time allowing the borrower access to more money over time. This is obviously a huge benefit. Also, the HELOC has a due date where it must be paid off or handled in some other way. The reverse mortgage is not due until the last borrower leaves the home or the youngest borrower reaches their 150th birthday. That’s right, 150th.
Let’s talk about rates. People think the HELOC has lower rates and can offer a fixed. Again please read the fine print. There is no such thing as a fixed rate HELOC. There are HELOCs that you can make part of fixed but not the whole line of credit. Also there are no caps on how much a HELOC can adjust annually etc and the national cap on them is 18% except in North Carolina where it is 16%. High, huh? With the reverse mortgage line of credit the cap is 5% above the start rate which means the lifetime cap is usually around 8% on average 10% less than the HELOC cap and they are Government insured. So next time you think about a HELOC vs a HECM, think HECM.
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