Issue 29.17
Part 2
My previous article explored how Home Equity Conversion Mortgage (HECM) Term and Tenure loans can help you extend your retirement savings. This article focuses on another HECM product that offers even greater flexibility, the HECM Line of Credit.
A HECM line of credit is a mortgage that gives you, the borrower access to funds up to the maximum amount available on a reverse mortgage. The credit line allows you to use only the funds you need at any given time. Even though you have access to the full amount of the line of credit, you don’t owe any interest on the line until you actually use the funds. This puts you in control of the amount of interest you owe and gives you the ability to maintain more equity in your property for a longer period of time. This loan is a great option for seniors who have sufficient monthly income but want a financial safety net for large, irregular or unforeseen events such as:
– medical and other emergencies
– vehicle purchase
– major home repairs or handicap modifications
In addition, many financial advisors recommend establishing a HECM line of credit just in case monthly investment income drops due to market conditions. Funds from the HECM line of credit can be used temporarily to supplement retirement income until the market recovers. This strategy allows you to maintain your monthly income without liquidating investments, potentially forcing an unwanted gain or loss.
A HECM line of credit has another very beneficial feature. The unused portion of the line of credit actually increases each year by the annual note rate plus the mortgage insurance premium (MIP). For example, let’s assume you established a HECM line of credit with an interest rate is 4.5% and MIP of 1.25%. Let’s also assume that you had an unused balance of $100,000. In one year’s time, your line of credit would increase by 5.75% (4.5%+1.25%). That means if you didn’t make any expenditures in 12 months, your line of credit would increase by $5,750 to $105,750.
This loan gives you great peace of mind knowing that you have access to funds for large needs without paying any interest on fund you don’t use and without making mortgage payments on the funds you do use. Remember, even though you don’t make monthly payments, a HECM loan is a mortgage that will be repaid through the eventual sale or refinancing of your home.
As with any loan, HECM mortgages have inherent advantages and risks. It’s always to seek the advice of a qualified, reputable and independent financial advisor when you consider the use of a HECM loan to supplement your retirement needs. I work with several excellent advisers in the St. George area and would be happy to offer you multiple suggestions so that you can choose the right person to meet your needs. Please call me at 435-669-0009 to find out more how either of these loans may help you extend your retirement funds.
Veritas Funding (NMLS#25108) is an equal Housing Lender. This is not an offer of credit or commitment to lend. Loans are subject to owner/property qualification.