The following information compares a reverse mortgage to a traditional line of credit. Evaluate the pros and cons of each to determine which option is best for your financing needs.
Choosing reverse mortgage lenders is an important first step towards getting the best reverse mortgages and the greatest benefits. We are experienced reverse mortgage lenders with 45 years of helping clients find the right solutions for their financial needs. A reverse mortgage is not mation you need, to decide if a reverse mortgage is your best option, or if a traditional line of credit would better suit your needs.
When you take out a line of credit, the funds are available to you as you need them. With a reverse mortgage, you can choose from a variety of options. When choosing reverse mortgage lenders, you want those that offer you more options to suit your individual needs. We can give you your funds in a lump sum, as a monthly payment, line of credit or a combination. You even have the option to change how your money is dispersed later on, if your circumstances change.
Unfortunately, seniors typically have problems getting a line of credit, because they are unable to meet the income qualifications. Choosing reverse mortgage lenders instead of a finance company means that you do not have to worry about income verification in order to qualify. Since you will not have to make monthly payments on your loan, you do not have to have an income at all!
To get the best reverse mortgages, choosing reverse mortgage lenders who provide you with a great deal of information and reverse mortgage counseling will help you make the best decision about the type of financing solution that will work best for you.
Reverse Mortgage |
Line of Credit |
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Amortization
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Loan balance increases over the life of the loan. |
Loan balance decreases over the life of the loan. |
Payment Flow
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Homeowners may receive monthly disbursements rather than making payments to the lender. |
Borrowers make monthly payments to the mortgage lender. |
Disbursement Options
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funds can be received in a lump sum, monthly payments, line of credit, or a combination of these options. |
Funds are available to the borrower as needed, in the form of a line of credit. |
Closing Costs & Fees
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Can be high in comparison to other loan products; allowable fees are restricted by government guidelines. |
Closing costs can be lower than HECM closing costs; however, they are not as strictly regulated. |
Mortgage Insurance
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There is a 2% upfront premium and a 0.5% monthly set-aside (not paid out of pocket). |
None |
Income Qualifications
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Because there is no monthly mortgage payment, there is no income verification. |
Applicants must qualify for the loan based upon several factors, including their level of income. |
Credit Qualifications
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Credit history does not affect approval because there is no monthly payment. |
A HELOC requires monthly payments, thus lenders will evaluate payments and credit history. |
Interest Rates
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There are variable and fixed rate options, the variable option has a rate cap. |
Mostly variable, fixed rates are rare and usually very high. The variable rate option is rarely capped. |
Government Insured
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Yes, borrowers are protected in the event of an equity shortage. |
No. Homeowners have no protection from the lender in the event of an equity shortage. |
Loan Term
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Indefinite, loan is due when homeowner no longer occupies the residence. |
Loan must be paid in full or refinanced at the end of a specified term. |
Lifetime Benefit
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Loan is most beneficial when used over a long period of time; other options are typically better for short-term solutions. |
A HELOC is more beneficial when used short-term; the cost of this loan increase with the length of the loan. |
Credit Line Growth
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Yes. Credit limit on the line of credit option increases over time. |
No. |
Asset Protection
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Assets owned by the homeowner cannot be sought by the lender to compensate for any equity shortage. |
Homeowners are not protected from lenders seeking compensation for equity discrepancy. |
Pre-Loan Counseling
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Yes. Applicants speak with a HUD-approved counselor to ensure understanding of the loan's financial implications. |
No. Understanding the terms and financial implications of the HELOC is solely the homeowner's responsibility. |
Deductibility of Interest
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Interest is deductible in the year the loan is paid off. |
Interest paid is annually deductible. |
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