Ask The Expert: Why don’t I just get a home equity line of credit?

posted by: Mark Schmidt Reverse Mortgage Specialist (773) 504-9633

If you plan on moving within the next three to five years and can manage the monthly payments required of a home equity line of credit (HELOC), the HELOC may be a better choice.

A HELOC usually offers a higher loan-to-value and lower closing costs than a reverse mortgage. However, the interest needs to be paid each month and some seniors don’t qualify for a HELOC due to low income and/or poor credit history. Also, HELOC’s usually have a ten year term after which the loan must either be paid back or refinanced. Some people figure they can get a HELOC to take advantage of the higher loan-to-value and lower closing costs and then use the HELOC itself to make the minimum monthly payments that are due. This can be dangerous, though, as each draw makes the outstanding balance higher which increases the payment due. In the long run, this is a self-defeating strategy and may put you in a position where there is no more availability under the HELOC but you still have large monthly payments to make.

Since the reverse mortgage was specifically designed as a “HELOC for seniors”, it is often a better choice for older adults looking to access the wealth tied up in their house. The fact that there are no monthly payments to make, no income or credit qualifications, and no repayment until you move, sell or pass away, usually outweighs the higher closing costs and lower proceeds when compared to a HELOC.

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