Reverse Mortgage with Credit Line Feature
With all of the changes in reverse mortgages these days, it pays to review your options again, if you are in the process of applying for one. The most popular program today is the fixed interest rate, lump sum pay-out program due to the amount of funds available to the borrower usually being greater with this option. It’s no secret that most home owners will want to get the most money available these days and probably because they need to pay off an existing mortgage but what if your home is free and clear of any mortgages? The other option is an adjustable interest rate reverse mortgage or the lower paying HECM Saver. Again, most borrowers might want to gravitate to the peace of mind that comes with a fixed interest rate but what if the rate on your loan was tied to the amount of funds available for future payments to you? In this case, you might get an unexpected bonus if and when interest rates rise. That is exactly what happens when you choose the adjustable interest rate option on your reverse mortgage.
Adjustable Rate Reverse Mortgage
The pay out options offered on an adjustable rate reverse mortgage (HECM) are lump sum, monthly payments, lifetime payments, a credit line feature or a combination of these options. For instance, you may choose to have a lump sum payment of $10,000 at the closing, a $500 per month payment guaranteed for ten years and the balance if any, in a credit line. Let’s focus on the credit line option because of its unique features and benefits.
Reverse Mortgage Credit Line Option
Every month, the loan servicing company will send you a monthly statement, showing all charges, fees and current balances. This will include the balance available for withdrawal from your credit line. You are not charged any interest on the funds remaining in your credit line and the money is always available to you and liquid. Interest can only be charged when you withdraw the money from the credit line.The credit line portion of your reverse mortgage proceeds is like a typical home equity credit line but with an added bonus. The best feature of the credit line occurs when you leave the money in the account. Your reverse mortgage credit line balance has a growth rate feature that increases the available balance over time at a rate equal to 1.25% higher than your loan rate! The current loan rate on an adjustable reverse mortgage (HECM) is as low as 2.5% and adjustable monthly. If you add the 1.25% flat rate to the loan rate of 2.5% you get a credit line growth rate equal to 3.75%!! This is an increase in your available balance, not a dividend or interest payment to you so it is not income and it is not taxable. It is the equivalent of an increase in your borrowing power without having to refinance at a future date.
Reverse Mortgage Credit Line Growth
Over time, your reverse mortgage credit line balance could grow to be quite substantial. Take a look at the illustration below and track the ten year growth rate of a reverse mortgage credit line for a borrower age 66 with a home value of $350,000.
Year
1) $217,634
2) $230,667
3) $244,480
4) $259,120
5) $274,637
6) $291,083
7) $308,514
8 ) $326,989
9) $346,570
10)$367,324
Add to this, an appreciation rate on the home’s value of just 4% and the home would be worth $518,085 in year 10. The net result is the borrower has a home worth $518,085 AND a credit line worth $367,324. This is why waiting to do a reverse mortgage just doesn’t make a lot of sense in some cases.
For more illustrations or to speak directly, call me…
Michael Manfredi is a Reverse Mortgage Specialist
Reverse Mortgage Concepts
Phoenix, AZ 85020
(602) 456-0009
(888) 697-5556
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