Is there a reverse mortgage line of credit?

19 years ago

At age 50 & 60, DH & I are re-examining our retirement planning ~ aka crystal ball gazing. I'm not a big fan of a reverse mortgage, but would love the opportunity far down the road to occasionally pull some of the equity out of the house - especially if the money would not need to be repaid until we die or sell the house. The total monies drawn would probably be less than a reverse mortgage.

It just feels weird trying to plan for the next 40 years! My guess is that sometime in there we'll see a return of killer inflation, and every type of economic condition imaginable.

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Comments (7)

pamghatten
19 years ago
Most reverse mortgages have options that you chose ... one we always recommend borrowers to chose it the line of credit option.

Not sure why you are not a big fan of reverse mortgages .. they are a great product for those that have tons of equity in their property and need some additional financial resources as they get older.

There are new reverse mortgage products coming on the market every week these days. The lenders are all working towards keeping the costs down.

When I am older I plan on getting a reverse mortgage, it's part of my financial planning now.
liz_h
Original Author
19 years ago
Thanks Pam. It's good to know there is a LOC option.

Actually I think that reverse mortgages can be a very good thing, just see the potential that they could be overused, much like home equity lending can be. My MIL died when she was 89. She had seen a few of her friends "outlive their money". A reverse mortgage with too high a monthly payout, or started too early could easily tap out the home's equity by the time inflation has eaten up a household's other resources. I guess the true picture is that it's a tool, and can be used wisely or carelessly, just like any other.
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Any closing costs or fees whether to the bank or title company? This would be a big deciding factor mor than anything else probably. You should not be paying any fees Make sure there are no prepayment penalties either 5% is an amazing rate. What bank did you get this at? Prime +5 is about 8.75% so huge difference. Run the numbers. If you are taking 100,000 over a year. Assuming no fees in either case, would be 8750 v 5000 so loan is better. However, if it takes you longer to do the renovations, then you might only be taking out 50k over the first 3 months, saving several 1000 dollars. Also, with a line as you start paying it back your rate effectively reduces however, assuming you do this for 6 months and pay back interest only , it would be 4375. However if you only borrow half the amount for the first 3 months until the work is complete, then it would be 2187 + 1093 = 3280 over 6 months interest only with the line. This assumes interest rates stay the same, they could go up which would cost even more With the loan it would be 100k over 6 months, interest only would be 2500 so this is the better deal in my scenario. so assuming there are no closing costs or fees, you are doing interest only and there are no prepayment penalties I would do the loan
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I'm an ametuer so take my comments at face value. First, understand that there are two types of loans: Home Equity Line of Credit (HELOC) and a Home Equity Loan. A HELOC works largely like a credit card in that you are approved for a certain amount and then you go spend it and your payments are calculated similar to a credit card. Depends on the agreement, but I know for mine at the five year point I couldn't charge anymore and was set on a payment schedule to pay off at 15 years. A Home Equity Loan is essentially a 15 year term loan from the beginning. They give you a set amount of money with a set payment schedule to pay it off in 15 years. This may be a worthwhile investment but I'll agree with Bill in making sure you can afford it. You mention a 6% rate which may be a guess on your part but in reality if that's the rate you can get then you've got credit problems and should reconsider this adventure.
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depending on any public funded programs for the future is a scary bet. being the child of 2 financial planners/cpa's i am very well informed on the future of US finances. many many famous financial experts (alan greenspan and warren buffett amoung them) are predicting the bankruptcy of medicaid and medicare in 10 yrs or less. SS apparently is bit more solvent at 20 yrs to bankruptcy. do you really want to put someone else's future dependent on that? and honestly if in the future we can't afford them and who is to say this country will be able to (i highly doubt there will be much of a fix given the economy) then what?? we can't even get regular insurance to the masses and that doesn't seem to bother alot of people. why would medicare/medicaid and SS going under bother those of us who will never see all the $$ we put in it any.... on reverse mortgages it is my understanding the deals USED to be much better for the homeowner but given the state of companies holding mortgages these days the fees associated w/ reverse mort. have skyrocketed. fees and charges eat away at what is paid out on a monthly basis and accrue over the period of the 'loan'. you need to definitely make sure to cover the length of time needed, i.e. planning on an elder to live well past their 90's otherwise when the time on the 'loan' expires the house/asset is gone and their very last yrs are left w/ nothing. also check into how reverse mortgages are handled in regards to declining home values, what may be worth $400K right now may only be $300K in 5-10 yrs and then their value runs out and the house is gone even faster.... there are lots of pitfalls but do your research and it may be what's best in your situation. ~ liz
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terezosa / terriks
19 years ago
My 75 year old mother inherited her mother's house a couple of years ago. Actually she inherited it with her sister, and then bought her sister out. It was a much nicer home than she was living in, plus my grandparents built it in 1945 and it has a lot of sentimental value so my mother wanted to keep it and live in it. With a reverse mortgage she was able to take a lump sum to pay off her sister, plus she has a line of credit she can use to make repairs to the house as needed. She has enough money invested for her normal expenses, but was worried that a house that age would really nickel and dime her. As she puts it the reverse mortgage lets "the house take care of itself." My siblings and I aren't concerned about there being any value left in the house when the time comes for her to live elsewhere, and it's really the best place for her to live right now - walking distance to town and a university with an elder-education program.
liz_h
Original Author
19 years ago
What a nice situation for your mother. When I started this thread, I was only aware of one type of reverse mortgage - the kind that makes a regular monthly payment to the borrower.
pamghatten
19 years ago
Liz,

Here's the link to the AARP website. They have a lot of really good information on Reverse Mortgages.

Here is a link that might be useful: AARP
terezosa / terriks
19 years ago
Yes, We are happy that she is able to live in a nice home and neighborhood without worrying about money.
joyfulguy
19 years ago
As far as I know, (a while ago) there were a limited number of lenders offering reverse mortgages in Canada, and they had some restrictions that some didn't like. Plus possibly a bit too high rate of interest.

I think that others have seen it as a good market and are becoming involved, so there may be more flexibility available, now or soon.

It should be possible to increase the amount of the loan in a flexible fashion, according to need.

I think that if one were to shop around, using a regular line of credit, one should be able to find such, without too heavy fee levels, per withdrawal, or whatever.

Good wishes as you make your plans, Liz.

ole joyful

Is there a reverse mortgage line of credit?

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Is there a reverse mortgage line of credit?

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