Benefits of a Reverse Mortgage Line of Credit
The line of credit feature of a reverse mortgage allows seniors to tap into the equity in their homes to receive cash as a lump sum and/or to draw from it as needed. This unique financing option offers several benefits for older homeowners who are looking for ways to supplement their retirement income, pay off debts, or simply enjoy their golden years in comfort. Here we’ll dive into some of the best benefits of a reverse mortgage line of credit.
1. Payment Optionality:
No Required Monthly Mortgage Payments*
One of the biggest benefits of a reverse mortgage line of credit is that there are no monthly mortgage payments required.* Seniors can borrow money as they need it, while not having to make payments on the balance until they move out, pass away, or sell the home. This makes it an excellent resource for seniors who are on a fixed income and want to maximize their retirement savings.
2. Access Funds When Needed & Only Accrue Interest on What’s Used
Another advantage of a reverse mortgage line of credit is that borrowers have access to the funds whenever they need them and will only accrue interest on funds used. This means the line of credit can be used as a kind of savings safety net that gets utilized when unexpected expenses arise, such as medical bills or home repairs. This flexible access to funds allows your senior clients to live their life with less financial worry.
3. The Growth Factor:
Unused Credit Increases Over Time
Another benefit, unique to the reverse mortgage line of credit, is that any unused credit grows over time,1 increasing what is available to your clients. The unused credit grows at the same rate as the loan balance, which means not only can your borrowers have access to more funds, but they can be protected from falling home values. On top of all that, the growth factor, coupled with payment optionality, allows your clients to pay the loan balance down, at any time, in any amount, and receive a dollar-for-dollar credit back to their line of credit – so what they pay in will grow at that same rate.
4. No Repayment Until the Loan is Due
With a reverse mortgage line of credit, borrowers don't have to worry about repayment until a qualifying event occurs. A qualifying event can be if the borrower(s) fails to meet their obligations, such as paying property taxes and insurance or maintaining the property, as well as the last borrower passing away, selling the home, or no longer living in it as their primary residence. The loan is non-recourse, and upon it coming due, the estate/heirs have several options for repayment. These features can give your clients peace of mind, knowing that they can enjoy their retirement years without having the burden of loan payments, and without burdening their heirs.
5. Preserves Assets
Finally, a reverse mortgage line of credit can help your clients preserve assets for their heirs. Opting to use the reverse line of credit as a savings bucket or safety net can allow borrowers to put other assets to work. They can leave money in retirement accounts or high-yield savings, move funds into alternative investments, and let their unused line of credit grow, all while having peace of mind that the line of credit is available to them, if or when a need arises. This can mean more growth across savings, which could turn into more of an inheritance for the heirs.
In conclusion, a reverse mortgage line of credit can offer a variety of benefits for seniors looking to supplement their retirement income or finance unexpected expenses. With payment optionality, borrowers can use the funds as needed without worrying about monthly mortgage payments.* Any unused credit grows over time, allowing borrowers to have access to more funds. The loan is non-recourse, and borrowers typically do not have to worry about repayment until they move out permanently, sell the home, or pass away, providing them with peace of mind. Additionally, a reverse mortgage line of credit can help borrowers preserve their assets for their heirs, making it a unique financing option that is worth considering for older homeowners.
*Borrower must pay property taxes, insurance, any HOA fees and maintain the property.
1Growth factor is not available on all reverse mortgage line of credits.
Our Smartfi Contributors are made up of a collective group of mortgage industry professionals, who share their personal opinions of the mortgage industry, topics, and various products. These are the express opinions of the Smartfi Contributor, and the article is based on their opinion and recommendations alone. It may not have been reviewed, commissioned or otherwise endorsed by Smartfi Home Loans, LLC.
Reverse mortgage proceeds may affect the eligibility and payments of Medicaid, SSI and similar program benefits. All clients should be advised to seek guidance on their financial situation with their financial planner/advisor. A reverse mortgage is not suitable for all clients in all situations.
All loans are subject to loan underwriting and must meet all product requirements. Programs can change at any time, please see product handbooks for full underwriting guidelines.