In this article

2. Home Equity Line of Credit (HELOC)
3. HECM Reverse Mortgage
4. Should I get a HELOC or HECM Reverse Mortgage as a Senior Homeowner?

Senior homeowners and retirees often find challenges living on a fixed income. Costs of living continue to go up, while the monthly payments from an IRA, 401(k) or pension plan stay the same. There may come a time where you need to tap into your home equity as the best source of supplemental income. 

There are numerous ways to access home equity in the form of mortgage loans:

• Home Equity Line of Credit (HELOC)

• Home Equity Loan (Second Mortgage)

• Home Equity Conversion Mortgage (HECM Reverse Mortgage)

• Other Reverse Mortgage Loans

Today, we want to directly compare the advantages and disadvantages of a HELOC vs. HECM reverse mortgage. Which is the better solution based on your specific homeownership solution and age? 

Home Equity Line of Credit (HELOC)

A home equity line of credit is exactly what it sounds like. You are establishing a credit line using your home equity as the foundation. You can withdraw what you need when you need just like you would use a credit card. However, a HELOC will offer much better interest rates and payback terms than a credit card because you are using your existing home equity as collateral. 

HELOCs are good for homeowners looking to borrow funds as they need them. They are often used to fund home improvements, covering unexpected medical payments, paying down other high-interest debts, helping pay for family college expenses, and other types of variable costs. They are nice because you never have to take out more than you need at any given time within a set withdrawal period (which could be up to 10 years), and they generally offer flexible payback terms. 

HECM Reverse Mortgage

If supplemental monthly income is the goal, then an HECM reverse mortgage will likely present a better solution than a HELOC or home equity loan. The Home Equity Conversion Mortgage is the only reverse mortgage program insured by the United States Federal Housing Administration (FHA) and Department of Housing and Urban Development (HUD). This provides more safety and security for both the lender and borrower compared to other reverse mortgage programs. 

An HECM reverse mortgage will enable you to borrow money straight from your own home equity. It comes in the form of monthly payments directly to you. In other words, the bank is sending you money each month—the “reverse” of a typical mortgage loan. You can borrow additional cash to supplement your fixed monthly income. The money does not have to be paid back until the borrower passes away or until the home is sold. 

How much you can borrow with an HECM reverse mortgage will depend on your age, qualified interest rate and home equity. You will also want to understand how the payback terms will ultimately affect your heirs and what they are able to do with the property when you pass away. An HECM reverse mortgage is a sensible solution if they are planning to sell it and cash out any remaining equity. If the family house is staying in the family and an heir is keeping it, then they will be responsible for paying back your reverse mortgage loan. 

Should I get a HELOC or HECM Reverse Mortgage as a Senior Homeowner?

To decide if a HELOC or an HECM reverse mortgage is the best solution for you as a senior homeowner, it’s important to understand how each loan program works. Look at the pros and cons, talk with your family and get quotes from qualified mortgage lenders before making your final decision.

For all your HELOC, HECM reverse mortgage and home equity loan needs in the Atlanta GA area, contact Moreira Team | MortgageRight today.