Reverse Mortgage

Reverse Mortgage

Line of Credit

Loan balance increases over the life of the loan.

Loan balance decreases over the life of the loan.

Homeowners may receive monthly disbursements rather than making payments to the lender.

Borrowers make monthly payments to the mortgage lender.

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.

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.

There is a 2% upfront premium and a 0.5% monthly set-aside (not paid out of pocket).

None

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 history does not affect approval because there is no monthly payment.

A HELOC requires monthly payments, thus lenders will evaluate payments and credit history.

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.

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.

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.

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.

Yes. Credit limit on the line of credit option increases over time.

No.

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.

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.

Interest is deductible in the year the loan is paid off.

Interest paid is annually deductible.