The Home Equity Conversion Mortgage (HECM) lines of credit are a unique way to get convert home equity to cash. You can take monthly advances, periodic advances, and if taking monthly advances from the line of credit and you need a lump sum of cash, you can do that too than switch back to the monthly advance. You can also just leave the funds in the line of credit and draw whenever necessary. It’s very flexible.
Your loan amount is determined by the age of the youngest borrower which on the HECM line of credit must be 62 years of age (is 55 on the non-HECM line of credit), equity in the home which is typically at least 50% equity and determined by a lender appraisal on your home, prevailing interest rates, and a moderate credit rating.
Once a loan amount is determined, taking a look at your income vs. debts is factored in. On all reverse mortgages, a monthly mortgage payment isn’t required to be made for the life of the loan which makes income qualifying much easier. We do look at monthly credit report related payments, such as credit cards and auto loans and if they are “excessive” versus the income, it’s possible a HECM reverse mortgage line of credit would be difficult to get approved. However, a non-HECM line of credit may work instead since the guidelines are different. It’s imperative you use a lender that can offer all reverse mortgage options and a side-by-side loan comparison is presented to see which loan fits your needs. I can make you a video for your situation to demonstrate the side-by-side comparison, just let me know.
If we need to increase income to qualify for the loan to make the qualifying numbers work, we can use the unused line of credit available, if any, and convert that into hypothetical income if need be.
The HECM reverse mortgage line of credit is similar to a bank HELOC or home equity line of credit but also has major differences. For one, the HECM line cannot be frozen due to a drop in home values. A HELOC can be frozen for this reason. A HECM line of credit stays open for the rest of your life, a HELOC has the line frozen after 10 years. For more differences between a HECM and HELOC watch my video HECM vs HELOC which is included in the Educational Videos tab at the top of my website.
The HECM unused portion of the line of credit also has a growth rate attached to it that is nice feature. I made a separate video explaining the available line of credit growth rate you can watch, click here. Every month the amount of unused credit available grows! It grows every month for the life of the loan which means there is more available funds to use at a later time. There is no cap on this growth. It is entirely possible the available line of credit you start with, untouched, can double in size in 10 years. This all depends on what interest rates are doing over that time and what your loan is tied to and how it is behaving.
Here’s video link I made that explains the HECM available line of credit growth rate feature, I use amortization tables to explain.
Thanks for visiting my site and feel free to tell me your loan scenario below and I can create a video for your unique situation.
Warm regards,
KW