A reverse mortgage is a special kind of home loan that comes with certain rules and stipulations, available only to homeowners age 62 or older that have substantial equity in their homes. For more clarity, make sure you read my article about the reverse mortgage basics to get a better understanding of how these home loans work.
Now on to the question at hand: What do you need to know about a popular payout option for these loans called a reverse mortgage line of credit?
The amount that your line of credit will be is determined by the lender. It will allow you to access a significant portion of your home's equity when the final amount is determined. Some HELOC lines of credit can grow over time, resulting in increased borrowing amounts.
Payment On Interest
With a HELOC loan, you will usually have to pay period interest on the loan. But with a reverse mortgage line of credit, you do not have to pay any interest charges until the end of the loan or if the loan becomes due (e.g. you sell your house, or the home is no longer your primary residence). A line of credit will come with upfront fees but shouldn't have additional fees to keep it open.
HELOC loans come on fixed terms, which can range. A reverse mortgage line of credit is an open term. Basically, it's stipulated by you following the rules. For example, the house needs to remain your primary residence as part of your loan terms. So the line of credit will only be affected if you either break the terms of your loan or if you pass away.
Who Holds The Line?
The FHA insures your loan, but the lender is the one who holds the line of credit. Usually, you will be able to log into their system to access your funds, or you can use it with the lender provided debit cards or checks. You still retain your home title, but the lender uses your home as collateral on the loan.
Just like any loan, you can repay the line of credit whenever you choose. You can also draw from it whenever you like, too. Many people take out these loans just to have the assurance of a nest egg they can tap if their investments run dry or they get hit with hidden, unforeseeable expenses during retirement.