HELOC monthly payment increases challenge borrowers and threaten financial security of those with limited savings and income.
George A. Downey, July 15, 2023

The traditional Home Equity Line Of Credit (HELOC) provided an easy low-cost way to tap home equity. Attractive to many homeowners as it required minimum interest-only payments during an initial period, usually the first seven to ten years. At the conclusion, most HELOC terms change to provide: (1) termination of access to additional withdrawals, and (2) increasing monthly payments to repay the loan balance over the remaining term.

Older HELOC borrowers at greatest risk to unexpected change.

Skyrocketing inflation and prices on just about everything are challenging everyone, but seniors with limited savings and fixed incomes are especially vulnerable. Mandatory payment increases intensify the problem with limited solutions available.
Refinancing to another HELOC or mortgage with more favorable terms may, or may not, be possible or advisable as lending policies are more restrictive than earlier times. Moreover, continuing to extend the burden of mandatory loan payments into retirement jeopardizes reduced incomes and financial security.

Reverse Mortgage – A unique solution with lifetime guarantees.

The HUD/FHA insured Home Equity Conversion (HECM) reverse mortgage enables older homeowners the ability to access home equity under terms uniquely designed to meet their changing circumstances.

The funding amounts are based on the current market value (currently at record levels in most areas), age of the youngest owner (one must be 62 or older), and current interest rates.

Unlike HELOCs, which can be changed or closed at the lender’s discretion, HECM benefits and terms are guaranteed as long as the loan remains in good standing. Although HELOCs have been a mainstream solution for many homeowners, they lack the versatility and security older homeowners require.

Alternatively, HECM terms are guaranteed by the Federal Housing Administration (FHA) insurance. Most importantly, the terms and benefits will not be altered by any adverse change in the economy, financial markets, real estate values, or potential lender failure.

Reverse Mortgage Overview

• Loan terms are guaranteed – access to cash cannot be frozen, limited, or cancelled as long as the loan remains in good standing.
• No monthly payment obligations – voluntary payments are permitted but not required.
• Title to home does not change – the lender does not take any ownership in the home.
• Flexible withdrawal options – credit line, periodic payments, lifetime income, or cash as needed,
• Growing line of credit – the undrawn balance of the credit line grows (compounding monthly) providing access to more funds in the future.
• No maturity date – repayment not required until no borrower resides in the property.
• Non-Recourse loan – neither borrowers nor their heirs incur personal liability.
• Repayment of loan balance can never exceed the property value at the time of repayment.

Good standing – Borrower obligations are limited to:

  1. Keeping real estate taxes, homeowner’s insurance, and property charges current
  2. Providing basic home maintenance
  3. Continuing to live in the property as primary residence.

Good for some – not for all

Reverse mortgages are unique. They were designed to meet the varying needs of older homeowners who want to age-in-place. The terms, benefits and operation are different from traditional (forward) mortgages.

Education is key to understanding if a reverse mortgage may be a suitable solution. The recommendation is to confer with a knowledgeable and experienced Certified Reverse Mortgage Professional (CRMP) to determine suitability and the best course of action for your situation.

To Learn More

Get the facts and determine if, or how, the various options to utilize housing wealth may enhance your individual needs and circumstances. For more information, visit the National Reverse Mortgage Lenders Association (NRMLA) website www.ReverseMortgage.org, or contact the author for a private consultation.

George Downey, CRMP (NMLS ID 10239) is the Regional Senior Vice President of The Federal Savings Bank branch located at 100 Grandview Road, Suite 105, Braintree, MA 02184. Contact Mr. Downey direct at (617) 594-3666 / gdowney@thefederalsavingsbank.com