Traditional HELOC or Reverse Mortgage?
Which one should I get—HECM reverse mortgage or bank HELOC?
— John
The consultants at Longbridge Financial can help you understand your options.
Although a HECM LOC (Home Equity Conversion Mortgage Line of Credit) and a traditional HELOC (Home Equity Line of Credit) are both credit lines secured against your home’s equity, they differ in several key ways. Whether a bank HELOC or a HECM is the right option for you will depend on your situation and financial needs. In the comparison below, we have outlined several important differences between these two types of loans.
HECM REVERSE MORTGAGE LINE OF CREDIT1 VERSUS HOME EQUITY LINE OF CREDIT
| HECM Reverse Mortgage LOC | Traditional HELOC | |
|---|---|---|
| Optional Monthly Payments |  * |
 |
| Funds can't be reduced/frozen | |
|
| Line of Credit Growth | |
|
| No Repayment Deadline | * |
|
| FHA Insured | |
|
| Counseling | |
|
| Multiple Payout Options | |
|
| No Annual Fees | |
|
*Keeping up with property taxes, insurance, and maintenance required
An Alternative, Senior-Friendly HELOC available to homeowners aged 62+
HELOC For Seniors®
Traditional HELOCs often lead to sudden, sometimes unaffordable increases. HELOC for Seniors® addresses them head-on with:
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Reduced, interest-only payments for the life of the loan.1
Keep monthly costs low and manageable. No payments shocks, sudden, unaffordable increases, or set term traps to worry about.
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Up to $400,0002 cash at a fixed rate per draw.3
Enjoy financial peace-of-mind without the risk of sharp payment spikes from variable interest rates.
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Fast approval and funding—in as few as 5 business days.4
No unnecessary waiting; complete the process from the comfort of home, with a convenient online application and e-Notary services.
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Flexible qualification options.
Even on a fixed income, you may qualify if you have enough home equity.
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An open-ended line of credit.
With a minimum upfront draw of 80%, you can reserve funds for future needs. Plus, repay and redraw any paid-down principal within a 10-year draw period for even greater financial flexibility (maximum 25 draws).
HECM vs. Traditional HELOC: Key Factors to Consider
Before deciding between a reverse mortgage vs. a traditional HELOC, consider your short-term and long-term goals for accessing your home’s equity. If you are age 62 or older, you have several options available that other homeowners may not—including our exclusive HELOC For Seniors®.
Start by asking yourself the following questions:
How do you plan to use the money? If you need cash for living expenses and plan to remain in your home for the foreseeable future, a HECM reverse mortgage may be a smart option. A HECM loan can also work to your advantage if your goal is to reduce monthly expenses by eliminating your monthly mortgage payment. You’ll need to continue paying property taxes, insurance, and maintaining the home as you do now. If you have sufficient income, but need fast cash for a one-time or short-term need, a traditional HELOC may make sense.
Are you considering using a line of credit5 as a safety net? Many homeowners who have taken out traditional HELOCs have quickly discovered that these types of loans are notorious for suddenly decreasing the amount available or closing the line of credit all together. This is common if the traditional HELOC is not regularly drawn upon and used. A HECM line of credit will remain open and available even if it’s not regularly used. In fact, the HECM line of credit is commonly used by homeowners to set aside funds for unexpected expenses or emergencies because it cannot be reduced, as it is prohibited by the laws that govern HECM reverse mortgages.
How long do you plan to stay in the home? If you are planning to “age in place,” a reverse mortgage line of credit offers some compelling advantages: no required monthly mortgage payments as long as you meet the loan terms, a line of credit that can grow6, and no mandatory repayment deadline until you vacate the home. Plus, a HECM reverse mortgage is a non-recourse loan so only the property can be used as a source to repay the loan. A traditional HELOC does not have these guaranteed safeguards.
Do you want your heirs to inherit your home? A HECM reverse mortgage is typically repaid through the sale of the home—so if you want to pass it on to your heirs, you’ll have to plan on alternative means for the loan to be repaid.
Are you receiving government benefits? Typically, receiving a HECM reverse mortgage credit line doesn’t affect Social Security or Medicare benefits, but may impact Medicaid or Supplemental Security Income (SSI). Talk to your financial advisor and appropriate government agencies about your specific situation.
Still have questions? Call 855-523-4326 and a Longbridge specialist can help you find answers.
1You must meet your loan obligations, and stay current with property taxes, insurance, and maintenance.
2Unless a lower loan amount is required under applicable law, loan amounts range from a minimum of $50,000 to a maximum of $400,000. Your maximum loan amount may be lower than $400,000, and will ultimately depend on your home value, lien position, credit profile, verified income amount, and equity available at the time of application. We determine home value and resulting equity through independent data sources and automated valuation models.
3HELOC For Seniors® is an open-end product where a minimum of 80% and up to a maximum of 100% of the full loan amount (less the origination fee and costs) must be drawn at closing. The initial amount funded at origination will be based on a fixed rate; however, this product contains an additional draw feature. As the borrower repays the balance on the line, the borrower may make additional draws during the 10-year draw period. If the borrower elects to make an additional draw, the interest rate for that draw will be set as of the date of the draw and will be based on an Index, which is the Prime Rate published in the Wall Street Journal for the calendar month preceding the date of the additional draw, plus a fixed margin. Accordingly, the fixed rate for any additional draw may be higher than the fixed rate for the initial draw.
4Approval may be granted in ten minutes but is ultimately subject to verification of income, employment, and property value, as well as verification that your property is in at least average condition with a property condition report. Five business day funding timeline assumes closing the loan with our remote online notary. Funding timelines may be longer for loans secured by properties located in counties that do not permit recording of e-signatures or that otherwise require an in-person closing or require a waiting period prior to closing.
5Line of credit option is only available for adjustable rate HECM products.
6If part of your loan is held in a line of credit you can draw from, the unused portion will grow each month, at a rate that’s equal to the sum of the interest rate plus the annual mortgage insurance premium rate.