Shopping for a Home Equity Line of Credit or Home Equity Loan? If you are 62 or older, consider this…
A Home Equity Conversion Mortgage (HECM) – also known as a Reverse Mortgage – offers a line of credit option with many of the benefits of a traditional Home Equity Line of Credit (HELOC), plus some significant advantages.
- Converts home equity into funds you can access as needed
- Federal Housing Administration (FHA) insured
- Flexible payment feature – Giving you freedom and flexibility in how you manage your monthly expenses.
- No required monthly payment on principal and interest. As with any home secured loan, you remain responsible for property taxes, homeowners insurance and property maintenance in order for the loan to remain in good standing.
- You can pay down your principal and interest if and when you choose, no pre-payment penalties apply.
- The unused line of credit grows over time, giving you more available funds. This means that the less you take up front, the more you will be able to borrow later.
- The lender cannot cancel or reduce your line of credit as long as you meet your loan obligations.
- There is no pre-defined loan maturity date. This loan remains in force and no principal and interest payments are required until you move, pass away or sell the home, as long as you meet your loan obligations.
How the Reverse Mortgage Line of Credit GROWS…
The unused portion of a Reverse Mortgage Line of Credit grows at a rate of 1.25% plus the current interest rate of the loan- independent of home value-as the chart below* shows. So as you age, you can gain access to significantly more funds. The earlier you establish the Reverse Mortgage Line of Credit and the less you take out up front, the more funds you’ll have in the future. To learn more, please contact us today at 401 562-2756.
*The information being shown is for illustrative purposes only. Scenario is a 62 year old couple, with a home valued at $300,000 and no mortgage, securing a Reverse Mortgage Line of Credit (LOC). LOC will grow at 5.16% above the 1-year LIBOR (Margin = 3.91% + ongoing Mortgage Insurance Premium of 1.25% = 5.16%). The initial LOC is $151,367; left unused, in 10 years, when they are 72 years old, LOC will have grown to $263,861 in available funds. In 20 years, at age 82, assuming no withdrawals the amount available will be $459,958. These estimates are based on a Rhode Island property and Reverse Mortgage LLC’s HECM Annual ARM as of 3/3/2016. The initial APR is 3.911%. The loan has a variable rate with a 5% lifetime cap. This means that the maximum rate that could be imposed is 8.911%. There is a $30/month servicing fee. In this example, closing costs include an origination fee of $0, third-party closing costs of $2,857.45 and up-front FHA Mortgage Insurance Premium of $1,500 depending on the appraised value of the property securing the loan. The borrower receives a credit at closing of $4,232.45. Interest rates and funds available may change daily without notice.