HECM Reverse Mortgage Line of Credit vs. a Home Equity Line of Credit (HELOC)
Which one should I get—HECM reverse mortgage or HELOC?
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The experts at Longbridge Financial can help you understand your options. Both a HECM reverse mortgage line of credit and a traditional home equity line of credit (HELOC) let you access your home equity for needed funds. But there are some key differences that could help you decide which one is right for you. Here’s a comparison chart that highlights these important distinctions:
HECM REVERSE MORTGAGE LINE OF CREDIT VERSUS HOME EQUITY LINE OF CREDIT
| HECM Reverse Mortgage LOC | HELOC | |
|---|---|---|
| Payments | No monthly mortgage payments required.1 | Requires monthly mortgage payments. |
| Available Funds | Lender cannot reduce the amount available to you. | Line of credit can be reduced or frozen by the lender at any time. |
| Line of Credit Growth | Unused portion can grow over the life of the loan.2 | Line of credit does not grow over the life of the loan. |
| Payback Deadline | None, as long as you meet the terms of the loan and remain in your home. | Typically comes due after 10 years. |
| Pre-payment penalty | No penalty for early repayment. | Pre-payment penalties can be charged in some cases—make sure to ask your lender. |
| Government Backing | Insured by the Federal Housing Administration (FHA).1 | Not FHA insured. |
| Counseling | Independent, HUD-approved counseling provided to ensure that you fully understand your options. | No independent counseling provided. |
| Qualifications | Must be a homeowner age 62+ and use the home as a primary residence.1 | Must qualify based on credit score and income. |
1 Borrower must continue to pay property taxes, insurance, and maintenance.
2 If 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.
Key factors to consider.
Before you decide between a HECM reverse mortgage line of credit and a home equity line of credit, think about your short- and long-term goals for tapping into your home equity.
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 great option. If you have enough income, but need fast cash for a one-time or short-term need, a HELOC may make sense.
How long do you plan to stay in the home? If you prefer to “age in place,” a reverse mortgage line of credit offers some compelling advantages: no required monthly mortgage payments1, a line of credit that can grow2, and no mandatory repayment deadline until you leave the home. Plus, a HECM reverse mortgage is a non-recourse loan, meaning you can never owe more than your home is worth. No such guarantees with a HELOC.
Do you want to pass your home on to your heirs? 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 alternate means for the loan to be repaid.
Are you on government benefits? Typically, a HECM reverse mortgage 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.
