Reverse Mortgage Line of Credit or Conventional Line of Credit?

From Shawna McDonald at Sierra Foothills Reverse Mortgage, located in downtown Grass Valley:  “Hello and Happy Spring to Seniors in Grass Valley, Penn Valley, Nevada City and surrounding areas. “

Spring is finally here and I wanted to share on my blog an article I recently wrote for our local newspaper The Union:

Reverse Mortgage Line of Credit or Conventional Line of Credit?

Two sets of clients consulted me with identical decisions: having retired, they sold large homes, paid all cash for smaller homes and modest remainder funds went to savings. Year one on retirement income went ok, however modest remainder savings for emergencies and little extras proved insufficient, sleepless nights ensued: “What if the roof and car went out?” Their question: Should we do a reverse mortgage credit line loan or a conventional credit line loan, aka a “HELOC”?

Having met with me, a reverse mortgage loan specialist and then independently with a conventional banker, both couples came to the same conclusions; a reverse mortgage credit line was the best option for them. Why? Unlike a RM credit line loan, a “HELOC”, requires monthly payments, is for a fixed period of time, and may require a future reset to a higher monthly payment. Both couples planned to use the proceeds of the HELOC to pay the monthly HELOC payment, therefore, realizing that when the HELOC credit line ran out, they would be forced to sell their homes if they weren’t qualified to refinance and take out more money to keep up with the payments. This risk potential was causing considerable distress, they wanted to age in place in their homes. Additionally, if one or the other passed, due to a then diminished household income and little life insurance in place; the remaining spouse would be required to go through the upheaval of selling the home because of an inability to make the monthly HELOC payment.

A HELOC typically has features which alarm me if used as a financial tool for seniors: A HELOC lender may reduce available HELOC funds or freeze the funds under certain conditions. This is NOT allowed with a RM credit line loan, RM loans are government supervised, insured by FHA and cannot be reduced, altered, or frozen; however, a RM loan does have a higher cost than a HELOC for these safety/insurance guarantees. As with any loan type, keeping current on property taxes and insurance is required.

The RM credit line loan will be titled like any loan, the borrowers remain owners of the home, the lender does NOT own the home, (a common RM myth). Regardless of the remaining amount in the RM credit line, both borrowers or the remainder borrower, if one predeceases the other, may stay in the home for their lifetime(s), sell and keep the remaining equity, or bequeath remaining equity to heirs, as they choose.

Shawna McDonald, Loan Officer, for 10 years has dedicated herself to specializing in reverse mortgage loans, she has successfully completed hundreds of them. Call Shawna to discuss your retirement goals: by private appointment or call for her next seminar date. Sierra Foothills Reverse Mortgage 412 E. Main Street Grass Valley (530) 497-3010. NMLS #271335 | CalBRE #00585530 Borba Investments Inc. Company NMLS #76801 |Company BRE # 01446165 These materials are not from, and were not approved by HUD or FHA