What to Know About Reverse Line Of Credit Mortgages
by: loasep09
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The Largest Available Amount of Money
A reverse mortgage does not have to be repaid until the borrower moves out of the home, passes away or sells the house. Because there is no official time limit for when the money has to be repaid, different funding arrangements are used for each type of payout.
If the borrower requests an up front lump sum payment, the interest rate is higher than with other payment options. If the borrower requests a monthly payment, the amount they qualify for will be lower than with other payment methods. This is because the payments continue for the life of the borrower, regardless of how long that is, and the lending institution does not want to end up lending more than the value of the home. A line of credit allows the borrower to use the maximum amount of any of these payment methods.
Use Only What You Need
If you are able to make your basic monthly payments with existing income, but are not able to plan for larger expenses, a line of credit reverse mortgage may be a good choice. With a monthly payment plan, you receive the monthly allotment whether you need it or not. If the money sits in your bank account unused, it may count as a liquid asset and disqualify you for certain government programs.
If you choose the lump sum payment but do not to use it all for the unplanned expenses, you must count the remainder as a liquid asset, and determine the best way to hold it so that the remainder is available if needed. With a line of credit, you use only what is needed. If another expense comes up, the line is already open and established, and you can tap into it easily.
Help for Home Maintenance
Many seniors’ homes begin to fall into disrepair at around the same time they become unable to complete most maintenance jobs on their own. Often, the roof and heating and cooling systems may need replaced all at once. Tapping into a reverse mortgage line of credit allows you to pay for these expenses as they come along without worry or waiting.
Advantages over a Traditional Home Equity Loan
The initial expense of reverse mortgage line of credit is higher than a traditional home equity line of credit, but these expenses are typically rolled into the loan, with no repayment needed until the loan is called. Another benefit to a reverse mortgage line of credit is that once open, it can be used until the equity in the home is entirely tapped. With a home equity line of credit, the lender may periodically review creditworthiness, and may decide to freeze lending on the account.
Finally, payments must be made on a home equity line of credit immediately. While someone may have the financial means to pay their monthly expenses, the added expense of a home equity payment may be enough to tighten the budget.
Easy Qualification
Qualifying for a home equity loan requires that you prove credit worthiness and the ability to repay the loan. For a reverse mortgage line of credit, because there is no expectation of repayment until the borrower passes away, moves or sells the home, credit worthiness is not an issue.
The borrower qualifies based on age and the existence of any mortgages or liens on the home. If the borrower is at least 62, they qualify for a reverse mortgage. There are no other mortgages or liens permitted on the mortgaged property. If there are existing mortgages or liens on the house, they must be paid in full with the initial payout of the reverse mortgage.
A reverse mortgage line of credit can be an excellent way for an older person to remain in their home. For many, this option provides the most amount of financial freedom, and alleviates the stress of relying on family members for help. With the ability to supplement their income when needed and the availability of ready cash to pay for repairs and maintenance to the home, many of the obstacles of home ownership are removed.
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About the Author
Lucinda Jones is a freelance writer who writes about the mortgage industry, often focusing on a specific topic such as a reverse mortgage.
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