By George A. Downey, CRMP
As retirement approaches, many homeowners find themselves rich in home equity but short on cash flow or access to funds when needed. Fortunately, two powerful tools can help: Reverse mortgages and home equity lines of credit (HELOCs). Understanding the difference could be the key to a more secure and comfortable retirement.
Reverse mortgage: A lifeline for older homeowners
If you’re 62 or older, a reverse mortgage allows you to tap into your home’s value without monthly loan payments. You can receive funds as a lump sum, monthly income, or a flexible line of credit. Best of all, repayment isn’t due until you sell, move out, or pass away.
Basic considerations:
No monthly payments = less financial stress.
Stay in your home while enjoying its value.
Protection from market downturns – you’ll never owe more than your home’s value.
Flexible access to funds for healthcare, living expenses, or peace of mind.
This option is ideal for retirees looking to stretch their savings and enjoy financial freedom without selling their home or taking on unwanted debt payments..
HELOC: Flexible credit for all ages
A HELOC is a revolving credit line secured by your home. You borrow as needed and make monthly payments, often interest-only during the initial draw period (typically 7-10 years). After that, payments increase to repay the balance by the maturity date.
Basic considerations:
Lower upfront costs.
Access funds as needed.
No age restrictions.
Great for short-term needs like renovations or emergencies.
HELOCs offer flexibility, but they require discipline and the ability to manage increasing payments later or the ability to repay the balance when the draw period ends.
Which is right for you?
If you’re retired or nearing retirement and want to improve cash flow without monthly payments, a reverse mortgage may be the better fit. If you’re younger or comfortable with monthly payments and want ongoing access to funds for a limited time, HELOC might be the better choice.
Both options unlock your home’s equity, but your choice should reflect your financial goals, lifestyle, and comfort with repayment.
Other considerations for reverse mortgages: Eligibility requirements apply. HECM counseling is required. Subject to credit and income approval. You must occupy the residence as your primary home. You must continue to pay for property taxes, insurance payments, homeowners’ association fee, home maintenance costs, and other fees as required. You must have significant cash available for the down payment. The balance of the loan grows over time and interest is charged on the balance. The loan becomes payable when the last borrower on eligible non-borrowing spouse passes away, sells the home, permanently moves out, defaults on taxes, insurance, or maintenance, or otherwise does not comply with the loan terms.
About the Author: 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 at 781-843-5553 / Cell 617-594-3666 / gdowney@thefederalsavingsbank.com, www.thefederalsavingsbank.com/georgedowney
