The Reverse Mortgage Credit Line: Growth Feature, Government Guaranteed & No Monthly Payments

Seniors Look to the Reverse Mortgage for all Sorts of Purposes  Including Travel

This is a reprint from an article I wrote for the Grass Valley Union Newspaper

A trend I see in my local Grass Valley Reverse Mortgage office: seniors establishing a reverse mortgage credit line not because they “need to”, but on standby as part of their overall retirement financial picture for the peace of mind it gives and maybe just a wee bit of extra travel. Financial planners in increasing numbers are suggesting the reverse mortgage as part of client retirement plans and an excellent way to stop 401 draws, beyond the required, as a way to allow retirement accounts to grow again during this time period of a stock market rebound. A common question I’m asked: “does the RM credit line work like a regular credit line?” It does, and it doesn’t.

A RM credit line allows a borrower to access funds for any purpose, as does a conventional credit line. They are also similar in that borrowers continue to own the home and borrowers are required to keep property taxes, maintenance and insurance current. However, unlike a conventional line of credit, there is no monthly repayment, it is insured by the government, and the dollar amount a senior is eligible for is guaranteed for life, it may never be reduced or the account closed at a bank’s discretion, which unfortunately is a trait of conventional credit lines.

 A RM credit line has another aspect: the “credit line growth feature”. That is to say: the dollar amount that may be borrowed grows larger over time as the borrower ages. When I teach my monthly workshops here in Grass Valley we go in-depth on this feature. In short for this article: the RM program guarantees continual growth on the unused portion of the credit line at the current interest rate on the reverse loan plus 1.25%. The reverse mortgage itself, as well as this credit line growth feature, was the brain child of President Ronald Regan and his financial advisors.

 Let’s look at the numbers in action!

“Betty” is 72 years old, $475,000 home appraisal, and per the HUD formula her credit line eligibility is approximately $273,000. The current interest rate that will accrue on spent funds is 3.4% plus 1.25% for the ongoing FHA mortgage insurance premium, for a total of 4.65% approximately. Her growth rate on funds she has not spent will also be 4.65%. (The combined rate on spent funds will always equal the rate of growth on funds reserved in the unspent credit line.)

Betty initially borrows $42,000 to pay off her first loan, interest rate of 6%, a credit card, interest rate19%, a car loan, 8% and rolled in initial loan costs . Her remaining credit line is approximately $225,000. She has swapped out higher interest rates on these accounts for the 4.65% total RM rate and will no longer have monthly payments on them.

OK ~ DRUM ROLL: In this scenario how much will her credit line borrowing ability have grown in 5 years? It will have grown from $225,000 to $282,000 approximately. In 10 years? Her borrowing ability will have grown to $355,000 approximately. (Spending out of the credit line is of course allowed, this example is a simplified one.)

The RM credit line allows seniors the financial ability to “age in place”: keep their home, privacy, and sense of control. The reverse mortgage may also be used to fund secure living in a dementia community for one homeowner/borrower as long as the other homeowner/borrower keeps the home as their principle residence. It’s a good idea to get the credit line in place while all borrowers are competent and able to fully understand the program.

Shawna McDonald Loan Officer, has successfully completed hundreds of reverse mortgages and is approved with    8 reverse mortgage lenders, ensuring clients receive competitive fees and great rates all within the privacy of a local full service office, Sierra Foothills Reverse Mortgage,  located at 412 E. Main Street Suite N, Grass Valley.                (530) 497-3010. Her website is www.SierraFoothillsReverse.com.  

Why not call to reserve a place in my next complimentary reverse mortgage workshop? Given monthly, these workshops are a fun way to learn about reverses in a relaxed atmosphere, with a complimentary catered meal. In addition, you’ll leave the workshop with a comprehensive packet of information including a dvd. Typical feedback from participants is that they leave feeling more confident that they have the facts about reverse mortgages and were able to get their questions answered one on one with a skilled specialist ~ licensed loan officer.

The opinions expressed here are solely those of Shawna McDonald, Loan Officer/Real Estate Broker. Copyright © 2015. All Rights Reserved, duplication and distribution prohibited. Shawna McDonald NMLS #271335 CA-BRE # 00585530 DBA Sierra Foothills Reverse Mortgage and Borba Investments Inc, DBA MLS Reverse Mortgage Auburn, CA NMLS #76801 BRE #01456165 ~ HUD approved lender.