When most borrowers hear about the definition of the Home Equity Conversation Mortgage that is also known as the reverse mortgage equity line of credit, they are sometimes unsure of how they differ from the traditional Home Equity Line of Credit (HELOC). The structures that have been put in place all seem similar; both are lines of credit that are secured against your home. Both accrue interest on only the amount that is borrowed, both of the rates are usually variable.
The Line of credit reverse mortgage is still the most popular option for many senior borrowers when they decide to choose how to access their funds with their reverse mortgage. It has been researched that borrowers have recognized this choice about 66% of the time when they are obtaining a reverse mortgage, this is according to the AARP. The credit line option allows the borrowers a great deal of freedom when planning their finances. Borrowers usually like the fact that they can be able to take as much as they want when the loan funds and then can take the funds only as needed from there.
However, since the credit line reserve mortgage is only available at an adjustable rate, many may wonder why this particular option is even more popular to a lot of senior owners than the fixed rate that is also available. The answer to this is flexibility. The fixed rate reverse mortgage option has only one way you can take your funds, and that’s all in the lump sum at the beginning. However, this particular option is fine in case you need all the funds at the beginning. For instance, you pay off an existing mortgage or for other purposes. However, if you to be able to access your funds as you go, the fixed rate option will not work. The credit lines give the borrowers the option of taking as much money as they wish at initial funding, but then with the remaining funds the borrowers can access the funds as they desire. In case you want to learn more about this you could get in touch with “America Reverse” and get your Free No Obligation Informational Guide.
However, there are other benefits to the line of credit that borrowers can get as well. For one, the borrower does not accrue interest on any portion of the funds that are being used. The borrowers who don’t have an immediate need for the funds do not necessary need to pay interest on the funds as long as the remaining unborrowed and available to the borrower.
The home equity Conversion Mortgage (HECM or Heck-um) line of credit is the one credit line that can never be frozen or closed while the borrower still has the remaining balance left on it.
Another important, crucial feature of the line of credit option is the credit line growth. There is often a misconception that this is interest earned, which is not the truth, but the unused portion of the credit line grows at the same rate at which the loan accrues interest +1.250% monthly.
In the current market is the fully indexed accrual rate (index + margin) is 2.50% + 1.25%=3.75% actual rate. Therefore, if the available funds of your loan are 393,708 after the Principal Limit costs have been determined, and you don’t use those funds then, your credit begins to grow monthly based on the interest rates. If the rate did not change for 12 months, then in the first month, you would be able to take $393,708*3.57%/12, and your credit line would grow by over $1,200 in that month alone. That means in the month to follow; you will start with a higher loan balance, so the line of credit goes even higher. After a period of 5 years, you will have available credit over $474,000 in credit line and should you live for another 10 years you could have over $600,000 available credit.
If you are interested in getting more information about reverse mortgages or need assistance in getting one, fell free to contact us and get your Free No Obligation Informational Guide. At America Reverse, we pride ourselves in offering our clients with the best quality service. Contact us today! Check out what Bill Medley from the Righteous Brothers to say about reverse mortgages.