The Benefits of a Reverse Mortgage Line of Credit Option
Financial Columnist Jane Bryant Quinn says: "Take a Line of Credit Now"
The reverse is changing.
By the end of September, the program that you and I know as "the reverse mortgage program" will no longer exist. How is this possible? The HUD is merging the two existing products into one and creating new guidelines to determine who will qualify for the reverse mortgage.
These changes, coupled with rising interest rates (which are currently at an all-time low) will affect the amount of money you can receive if you wait to take out the reverse mortgage.
One of the common reverse mortgage misconceptions, however, is that reverse mortgages are just for the financially desperate. I want to stress, this is not true.
In fact, the line of credit option still remains a powerful retirement planning tool, even if you don't need the money now, especially if you don't, there has never been a better time to take out a line of credit.
Flexibility. No one knows the future, or has control over what happens, but you can have control over how you plan your finances.
From the lips of financial advisor, Jane Bryant Quinn:
"You can borrower as early as 62 and take the mortgage in the form of a line of credit line instead of all-cash. You can borrow against the credit line at any time, but you don't have to take the money now. More importantly, this creadit line grows every year--greatly increasing your borrowing power in the future."
In short, the line of credit is a safeguard against future, unexpected expenses. It's a loan that doesn't become due until you leave your home permanently (for whatever reason) or are out of your home for 12 consecutive months. In addition, you do not have to make monthly payments on the reverse mortgage and, with the line of credit option, only the used portion is accrues interest (the unused portion remains interest-free). Lastly, the line of credit can never be frozen or reduced (while there are still funds in the account), unlike a home equity line of credit.
When the loan becomes due and payable, the house is sold and the profits go to repaying the loan (plus the interest accrued) and, if there is money left over, it goes to the heirs. If the home sells for less than the loan amount, the FHA pays the difference so that your heirs are never responsible for covering the lender's losses.
The line of credit option, however, requires that the borrower does not take out the full amount in cash. In fact, it would be unwise to do so, if you can avoid it, because you wouldn't have enough to pay your financial obligations as you go into your 70s and 80s.
The beauty of the line of credit is that the funds available to the borrower grows yearly based on the mortgage interest rate. The higher the rates, the higher your credit line will grow, the more funds you will have available at your disposal.
It's a decision that has to be made now, while the conditions remain as advantageous as they are now. In the future, the same guidelines will not ability and you might find yourself up the creek without a paddle.
Click here for more information about the elimination of the reverse mortgage program as we know it: