Understanding the Reverse Mortgage Line-of-Credit
A Reverse Mortgage with a Dynamic Line-of-Credit Feature can be a powerful retirement tool. There are many ways a new reverse mortgage can be structured when it is setup. Options include taking a lump sum at closing, receiving a series of monthly disbursements over time and creating a line-of-credit which can be drawn on as needed. This page aims to provide a comprehensive overview of the reverse mortgage line of credit, its benefits, and considerations.
What is a Reverse Mortgage Line of Credit?
A reverse mortgage line of credit is an option for drawing funds out of the reverse mortgage on a "as desired" basis. The size of the line of credit is determined based on a portion of the equity they have built in their homes. This line of credit allows borrowers to access funds whenever they need them, up to a pre-determined limit. One of the best features of the line of credit is the growth feature. The portion of the line of credit which is available and has not been drawn out will continue to grow over time, providing the borrower with increased borrowing potential and access to increasing funds over time.
(note: growth does not occur on funds that have been drawn out already and growth only occurs on what's still available)
How Does The Line of Credit Work?
The Line of Credit works similar to a traditional HELOC (Home Equity Line of Credit) but with the benefits and safety offered by a reverse mortgage. The borrower will receive a monthly statement from the reverse mortgage servicer each and every month. The statement shows key items on the loan including current loan balance and available line-of-credit amount. Behind the statement can be found the line of credit withdrawal form. Funds can be accessed by requesting them which is a simple process. Funds drawn out are sent to the borrower and then added to the outstanding loan balance.
There are No Monthly Payments Required on a Reverse Mortgage Line of Credit. Borrower does have to occupy the property plus pay the ongoing property taxes, homeowners insurance and maintenance of home for the loan to stay in good standing. Do those things and you don't have to make any monthly payments until the very end of the loan. The loan will come due and get paid paid back upon a maturity event such as death or sale of home or other maturity event.
How to Access the Reverse Mortgage Line of Credit Funds?
To access the reverse mortgage line of credit funds the borrower(s) fills out the line of credit withdrawal form and indicate how much they want to draw. The form is simple to complete. The borrower signs the form and then sends back to customer service either via regular mail, fax or sometimes there is an online or email option to submit the form electronically.
Customer service will then disburse the funds requested to the borrower. If the borrower provided bank information at time of closing then the funds will be sent electronically via ACH deposit into the borrowers bank account. If no bank info is on file then a check will be sent to the borrower.
The Two Main Types of Reverse Mortgage Lines of Credit: HECM and Jumbo Reverse Mortgages
HECM Reverse Mortgage Line of Credit
The HECM (Home Equity Conversion Mortgage) is the fha-insured version of the reverse mortgage.
Highlights of the HECM Line of Credit:
- HECM Line of Credit has a lifetime draw*
- HECM Line of Credit cannot be cancelled if home value drops*
- HECM Line of credit growth rate is higher than the jumbo reverse option
- HECM Line of Credit is fha-insured and HUD will take over the loan and line-of-credit if the lender ever fails or files bankruptcy
- HECM Line of Credit is based on HUDs current lending limits and could offer less funds than the Jumbo Reverse Mortgage potentially could if borrower has a high valued home
*Loan must remain in good standing for the line of credit to remain open and for the growth feature to remain in place. Line of credit will be closed upon a default or maturity event. (such as failing to occupy home, pay ongoing property taxes and insurance and other loan terms)
Jumbo Proprietary Reverse Mortgage Line of Credit - Loan Amounts Up To $4 Million
The Jumbo Reverse Mortgage Line of Credit is a private lender loan option. They are also known as Proprietary Reverse Mortgages which offer much larger loan amounts.
Highlights of the Jumbo Reverse Mortgage Line of Credit:
- Jumbo Line of Credit offers loan amounts up to $4 million - significantly more than a HECM
- Jumbo Line of Credit has a 10-year draw period (however the reverse mortgage itself remains open and will continue for borrowers lifetime or until a maturity event)*
- Jumbo Line of Credit growth rate occurs only on years 1-7 and is 1.5% annually
- Jumbo Line of Credit is NOT fha-insured and is made by private lenders
- Jumbo Line of Credit can be reduced or cancelled by lender if home prices drop significantly after closing
- No Upfront or Ongoing MIP Charges - No Mortgage Insurance Premiums Required (unlike the HECM which has MIP fees) This can result in significantly lower closing costs than a HECM.
*Loan must remain in good standing for the line of credit to remain open and for the growth feature to remain in place. Line of credit will be closed upon a default or maturity event. (such as failing to occupy home, pay ongoing property taxes and insurance and other loan terms)
Let's Review Together What A Reverse Mortgage With a Dynamic Line of Credit Feature Could Offer You
Please give me a call personally
(619) 294-9820 (888) 603-1550
John Correll, CRMP
Certified Reverse Mortgage Professional
California and San Diego's Reverse Mortgage Specialists
