What if that same Line of Credit could grow larger each year to potentially provide a line of credit amount that could be greater than the actual future value of your home?
And, what if you had no requirement to make a monthly mortgage payment on the funds which you have borrowed?
Those are features of the Home Equity Conversion Mortgage, sometimes known as the HECM Line of Credit, or HECM-LOC, an FHA Home Equity Loan that exists solely for homeowners at least age 62.
It’s different from a Bank HELOC and it’s different from the Reverse Mortgage.
You likely know that the Reverse Mortgage loan is designed to enable senior homeowners to stream portions of home equity as monthly proceeds. It is that part of the Home Equity Conversion Mortgage (HECM) program that is primarily used to enhance monthly cash flow for cash-strapped retirees.
But what about the funding needs related to elder healthcare requirements or emergency access to cash?
That is when the second option, the HECM Line of Credit, becomes more relevant and more valuable.
As incredible as it may seem, by establishing the HECM Line of Credit, a homeowner can create a credit line that starts at X and grows to X plus Y, providing an ever enlarging amount of funds that can be accessible for future needs.
The HECM Line of Credit cannot be arbitrarily canceled, frozen, or withdrawn regardless of the actual value of the home.
This powerful feature is protected by the unique FHA Insurance component of the Home Equity Conversion Mortgage. The available funds represent the borrowing capacity at any given time less any previously borrowed funds.
It’s Important to understand that no monthly mortgage payments are required.
And, the loan is not required to be paid off until the last remaining borrower borrower or eligible non-borrowing spouse either moves away, sells the home, or dies. Real Estate Taxes, Homeowners Insurance, and other property charges such as Homeowners Association Fees are required to be paid by the homeowner. Failure to make such payments could result in the loan being called due.
The HECM Line of Credit option is certainly worthy of discussion as a part of your retirement planning. It is especially useful when used as a way to protect against market fluctuations, ie., home equity funds can be used instead of selling stocks in a down market.
[Note: This scenario example is for educational purposes only. Actual loan terms and the available Line of Credit are dependent on current interest rates, home value, actual age of youngest borrower and other terms which may exist at the date on which the original HECM Line of Credit is initiated. This is not an offer to extend credit. Other terms and conditions apply.]