Reverse Mortgage Loan Blog

Using the payment option of an equity line of credit seems to be a popular payment option for the adjustable rate reverse mortgage program. The reverse mortgage program or Home Equity Conversion Mortgage (HECM) is a program for mature Americans, 62 or older, who need to supplement their current monthly income by using the equity in their current homes. The reverse mortgage program offers mature borrowers the ability to choose their interest rate terms, fixed or adjustable, as well as their various payment options for the adjustable rate.

With the three primary payment methods, monthly payments, lump sum or an equity line of credit, under the adjustable interest rate reverse mortgage programs many mature borrowers are using the equity line of credit (ELOC) as their primary income funding source. According to the AARP, an organization dedicated to informing mature Americans about various topics, “the line of credit option is by far the most popular option.”

The key to the equity line of credit is the freedom the plan offers for mature borrowers to get their finances in order. The ELOC gives mature borrowers the ability to access their money as they see fit and when they want. With the fixed interest rate, the borrower is unable to select a varied payment form because at this time the only payment for this program is the lump sum option. For a borrower who does not have a lot of upfront expenses, such as a mortgage or high medical expenses, a fixed interest rate reverse mortgage is limiting.

The features of the ELOC include:

• In the ELOC the unused portion of the borrower’s equity or money does not accrue interest, as long as the borrower does not use the money.
• If the borrower has a balance for the ELOC then the account cannot be frozen or closed like with other lines of credits at a bank.
• All federal insurances on the home being used by the borrower must be paid in order to keep the borrower’s funds available. Due to the reverse mortgage program being monitored by the Federal Housing Authority (FHA) and the Housing of Urban Development (HUD), all federal insurances must be paid to maintain the loan balance and its availability.
• The best part for most borrowers is that the unused money from the reverse mortgage can grow. An unused balance in an ELOC reverse mortgage can grow at a +0.5% monthly interest rate.

Over 65% of reverse mortgage customers choose to use the equity line of credit because of the payment options accessibility and strong growth for unused money. Yet in still it is important for mature borrowers to understand the program they are seeking to participate in and fully understand its payment options.

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