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Q: Which is better, a Home Equity Line of Credit or a Reverse Mortgage?

The better option will depend solely on an individual's circumstances. A HELOC is typically less expensive to establish, benefiting those looking for short-term financing. On the flip side, a HELOC comes with several disadvantages as well. With a HELOC, you have mandatory monthly payments, and the available line of credit is not guaranteed. It can be frozen or eliminated at the lender's sole discretion. The open-ended period (when you can draw funds) usually lasts only ten years. The mandatory monthly payments also increase significantly when you reach the recast period (usually at the end of 120 months). The loan goes from interest only to principal and interest repayments to pay off over the remaining term. Failure to make timely payments can damage your credit and even result in foreclosure. A Reverse Mortgage will be more expensive to establish the loan as there is mortgage insurance due to HUD, so it is not designed to be a short-term financing solution as it is intended to be the last loan you ever need. With a Reverse Mortgage, your available funds, which can be accessed as a line of credit, scheduled monthly advances, initial cash disbursement, or even a combination of all 3, are guaranteed for as long as you live in the property by HUD. Your line of credit cannot be frozen or eliminated due to market fluctuations, and the unused line of credit grows in availability over time. The funds remain available for as long as the loan is in good standing (the borrower lives in the property as a primary residence and maintains taxes and insurance). There are no mandatory monthly payments on a reverse mortgage, so you cannot damage your credit by missing a monthly payment. Voluntary payments are permitted without any prepayment penalty.

See how a reverse mortgage line of credit compares to your HELOC — free quote, no obligation.

Michael G. Branson, CEO of All Reverse Mortgage, Inc., and moderator of ARLO™, has 45 years of experience in mortgage banking, with the past 20 years devoted exclusively to reverse mortgages. A Forbes Real Estate Council member, he developed the industry's first fixed-rate jumbo reverse mortgage and has been featured in Forbes, Kiplinger, the LA Times, and Yahoo Finance. (License: NMLS# 14040)

Cliff Auerswald, President of All Reverse Mortgage, Inc., and co-creator of ARLO™ — the industry's first real-time reverse mortgage pricing engine — has 27 years of experience in mortgage banking, with 20+ years focused exclusively on reverse mortgages. A recognized expert in reverse mortgage technology and consumer education, he has been featured in Kiplinger, Yahoo Finance, Realtor.com, and HousingWire. (License: NMLS# 14041)

Reverse Mortgage vs. HELOC — Which Is Smarter for Retirees? Line of Credit Comparison

By Michael G. Branson

CEO · 45 yrs in mortgage banking

Edited By Cliff Auerswald

President · All Reverse Mortgage Inc.

Updated Nov 18, 2024 ⏱ 12 min read ✓ Fact Checked HUD-Lender #26031-0007 21 comments

As retirees seek ways to supplement their income or cover expenses, accessing the equity in their home can be a practical solution. Two popular options for doing so are the Home Equity Line of Credit (HELOC) and the Home Equity Conversion Mortgage (HECM), also known as a reverse mortgage. While both allow homeowners to unlock the value of their property, they differ in terms of eligibility, repayment terms, and long-term impact on finances.

In this article, we’ll explore the key differences between a HELOC and a reverse mortgage, helping you decide which option is best suited to your retirement financial needs. Whether you need additional cash flow or are looking for a financial safety net, understanding these two options is crucial for making an informed decision about your future.

Table of Contents

• What Is a Reverse Mortgage Line of Credit?

• How a Reverse Mortgage Allows for Flexible Repayments

• Reverse Mortgage vs HELOC: Real-Life Examples

• The Unique Growth Feature of Reverse Mortgages

• Easier Qualifications for a Reverse Mortgage

• Reverse Mortgage vs. HELOC: Feature-by-Feature Comparison

• Top FAQs

What Is a Reverse Mortgage Line of Credit?

In 2026, the reverse mortgage line of credit has become a flexible and strategic tool for tapping into your home equity, especially with the recent increase in lending limits by the U.S. Department of Housing and Urban Development (HUD). For older homeowners on fixed incomes, it can be an ideal alternative to a traditional Home Equity Line of Credit (HELOC).

Key Benefits of a Reverse Mortgage Line of Credit:

Flexibility: One of the standout features of a reverse mortgage line of credit is its flexibility. Unlike conventional loans or HELOCs, you have the freedom to make voluntary payments whenever you choose — or not at all. This gives you the ability to borrow and re-borrow funds as needed, which can be particularly helpful for covering unexpected retirement expenses. This structure contrasts with fixed-rate, closed-end loans, which require fixed payments and do not allow reborrowing.
Growth of Available Credit: Another unique benefit of a reverse mortgage line of credit is its ability to grow over time. Over time, the available credit increases, creating a larger financial cushion for future needs. This is especially beneficial for covering expenses such as medical costs, in-home care, or other unexpected retirement expenses. The growing credit line ensures that your available funds keep pace with inflation and future needs, providing greater financial security and peace of mind throughout retirement.

Reverse mortgages can offer retirees greater financial flexibility compared to HELOCs because they don’t require monthly payments. While a HELOC demands ongoing repayment and can be frozen or canceled by the lender during economic downturns, a reverse mortgage credit line grows over time and cannot be frozen, ensuring reliable access to funds when needed most. This unique growth feature and payment flexibility make reverse mortgages a smart financial tool for retirement planning.

How a Reverse Mortgage Allows for Flexible Repayments

A reverse mortgage is a unique loan that offers flexibility rarely found in traditional financing options. Although it accrues interest like any other loan, the major difference is that repayment is typically deferred until the loan becomes due — usually when the borrower moves out of the home or passes away.

For homeowners aged 62 or older, a reverse mortgage provides several repayment options, including:

Monthly Installments
Lump Sum Payments
Line of Credit

This flexibility allows you to customize your reverse mortgage based on your specific financial needs and retirement goals.

Voluntary Interest Payments: An Advantage Over HELOCs

One often overlooked feature of a reverse mortgage is the ability to make voluntary interest payments before they are due. While making interest payments is not required, choosing to pay them down can help preserve your home equity over time. This option offers a significant advantage over traditional Home Equity Lines of Credit (HELOCs), which typically require regular monthly payments.

By offering such flexible repayment options, a reverse mortgage empowers you to stay in control of your finances — whether you want to defer payments or proactively manage your loan balance as part of your overall retirement planning.

Reverse Mortgage vs HELOC: Real-Life Examples

Understanding how a HELOC and a reverse mortgage work in real-life scenarios can help you make an informed decision. Below, we examine how each option may affect homeowners in various situations.

Scenario 1: Jack Chooses a HELOC

Jack is a 70-year-old homeowner with a $300,000 home and no existing mortgage. He decides to take out a Home Equity Line of Credit (HELOC) to access some of the equity in his home. Here’s how Jack’s HELOC might look:

Loan Amount: Up to $240,000 (80% loan-to-value)
Borrowed Amount: $100,000 from his available line
Interest Rate: Prime + 2.00% (approx. 8.50%, based on a prime rate of 6.5% in 2024)
Monthly Payments:
- $708 (interest-only payment)
- $876 (fully amortized payment)
Rate Adjustments: Interest rate can change monthly based on the prime rate
Closing Costs: Typically $0 – $500 for most lenders

While Jack enjoys a high loan-to-value ratio, he faces mandatory monthly payments and fluctuating interest rates. If the prime rate rises in the future, Jack’s monthly payments could increase, potentially creating financial strain — especially if he is on a fixed income in retirement.

Scenario 2: Jack Chooses a Reverse Mortgage Line of Credit

Jack opts for a reverse mortgage line of credit on his $300,000 home, which has no existing mortgage. With a current principal limit of 40.9%, here’s how his reverse mortgage line of credit might look:

Loan Amount: Up to $122,700 (40.9% loan-to-value ratio)
Borrowed Amount: $100,000 from his available line
Interest Rate: 1-year annual Treasury Constant Maturity Index (CMT) + 1.75% margin (approximately 6.0% fully indexed)
Repayment Options:
- Voluntary Interest Payment: Approximately $500/month (interest-only)
- Additional Principal Payments: Optional and flexible
Rate Adjustments: Limited to once per year
Closing Costs: $0.00

Jack benefits from the flexibility to defer payments until the loan becomes due or to make optional payments on interest or principal. The annual interest rate cap offers stability compared to the frequent rate changes typically seen with HELOCs.

Which Option Works Best for Jack?

While a HELOC might provide a higher borrowing limit, it also requires monthly payments and exposes Jack to significant interest rate fluctuations. In contrast, the reverse mortgage line of credit allows Jack to manage his retirement finances more freely. With no required monthly payments, he can focus on accessing funds as needed while maintaining financial peace of mind.

For retirees like Jack, the reverse mortgage line of credit remains a strong choice, combining flexibility with stability.

Also See: HECM vs. Reverse Mortgage – Is There a Difference?

The Unique Growth Feature of Reverse Mortgages

While a Home Equity Line of Credit (HELOC) may offer a higher initial borrowing limit, a reverse mortgage line of credit provides unique long-term advantages, making it an appealing choice for many retirees.

What Sets a Reverse Mortgage Line of Credit Apart?

A standout feature of a reverse mortgage line of credit is its growth factor. With a Home Equity Conversion Mortgage (HECM), any unused portion of the credit line grows over time. This means that if Jack leaves his reverse mortgage credit line untouched, the available funds will increase, allowing him to access more of his home equity in the future.

This growth occurs independently of home value appreciation, offering a built-in safeguard against inflation or market volatility.

Who Benefits Most from the Growth Feature?

This feature is particularly beneficial for younger borrowers just meeting the qualifying age of 62. Many financial planners recommend using a reverse mortgage credit line as a financial tool to:

Protect Against Future Uncertainties
Maximize Retirement Income
Build a Financial Safety Net

Enhanced Safeguards and Responsible Borrowing

Modern reverse mortgages include enhanced safeguards, such as financial assessments, ensuring borrowers can responsibly meet loan obligations. These measures have helped reverse mortgages become a trusted tool for retirement planning.

Proven Strategy for Retirement Success

Research has shown that retirees who strategically incorporate a reverse mortgage line of credit into their financial plans are less likely to run out of money in retirement. This credit line is often maintained as a “rainy day fund” or as part of a diversified financial strategy. By offering flexible access to home equity and the potential for growth, reverse mortgage lines of credit continue to gain popularity among retirees looking for long-term financial stability.

Easier Qualifications for a Reverse Mortgage

One of the key advantages of a reverse mortgage is its lack of required monthly payments, a feature that sets it apart from a Home Equity Line of Credit (HELOC). With a HELOC, borrowers must make ongoing repayments, which can strain cash flow. In contrast, reverse mortgages are designed to improve financial flexibility, making them especially appealing for retirees who want to boost their cash flow without the burden of monthly loan payments.

Simplified Qualification Requirements

Reverse mortgages are easier to qualify for compared to HELOCs, thanks to their tailored approach for older homeowners aged 62 and up. Here’s why:

Less Stringent Financial Criteria: Borrowers with no existing mortgage and a stable financial history often find reverse mortgages more accessible.
Fixed-Income Friendly: Unlike HELOCs, which require higher income and stricter credit standards, reverse mortgages accommodate the financial realities of retirees.

A Tailored Loan Amount for Retirees

Reverse mortgages also provide loan amounts better suited to the needs of older borrowers. While HELOCs may offer larger sums, they require regular repayment, which can be daunting for individuals on a fixed income. With a reverse mortgage, borrowers can:

Access only what they need, reducing financial risk.
Enjoy the flexibility to defer repayment until the loan becomes due, freeing up additional cash flow.

A Practical, Accessible Solution

By combining easier qualifications with flexible repayment options, reverse mortgages offer an accessible way to unlock home equity without financial strain. This unique design makes reverse mortgages an ideal choice for homeowners seeking a balance between financial freedom and stability in retirement.

Reverse Mortgage vs. HELOC: Feature-by-Feature Comparison

Compare Features	HECM Reverse Mortgage (FHA-Insured)	Proprietary Reverse Mortgage (Non-FHA)	Traditional HELOC (Home Equity Line of Credit)
Minimum Age to Qualify	62	55–62 (varies)	No minimum
Line of Credit Term	Lifetime	10 years	10–15 years draw period
Can It Be Frozen or Reduced?	No (protected by FHA)*	Yes*	Yes*
Line of Credit Growth	Yes, grows lifelong	Limited	Limited
Monthly Mortgage Payments Required	No	No	Yes
Income Requirements	Minimal (financial assessment)	Minimal (financial assessment)	Strict
Credit Score Needed	No minimum	No minimum	620+ typical
Savings/Reserves Needed	No	No	Often required
Closing Costs	Yes (can be financed)	May be lower	Yes (can be financed)
Fixed Interest Rate Option	Available for lump sum	Available	Variable common
Rate Index	CMT or SOFR (2025)	Varies	Prime rate

*Notes: HECM protected unless obligations unmet. Proprietary/HELOC can be frozen if values drop or payments missed (source: CFPB HELOC Brochure, accessed July 13, 2025). For more, see our HECM vs. HELOC Guide.

Top FAQs

What is the difference between a reverse mortgage and a HELOC?

A HELOC (Home Equity Line of Credit) is a traditional line of credit that requires monthly payments and can be closed or frozen by the lender at their discretion. In contrast, a reverse mortgage, insured by HUD, guarantees access to your funds as long as you meet the loan terms. With a reverse mortgage, borrowers are not required to make monthly repayments as long as they live in the home and keep up with property taxes, homeowners insurance, and necessary maintenance. This makes it a more stable and predictable option for retirees compared to a HELOC.

Which is better, a Home Equity Line of Credit or a Reverse Mortgage?

The better option depends on your individual needs and financial situation. Here’s a breakdown of key differences to help you decide:

Home Equity Line of Credit (HELOC):

Lower Upfront Costs: HELOCs are typically less expensive to establish, making them ideal for short-term financing needs.
Mandatory Payments: Monthly payments are required from the start, which can strain your budget, especially during retirement.
Limited Draw Period: Most HELOCs allow access to funds for up to 10 years, after which the loan enters the recast period. At this stage, payments increase significantly as the loan transitions from interest-only to principal-and-interest repayments.
Risk of Freezing: HELOCs are not guaranteed and can be frozen or closed by the lender at any time, especially during economic downturns.
Credit Risk: Missing payments can harm your credit and lead to foreclosure.

Reverse Mortgage (HECM):

Higher Upfront Costs: Reverse mortgages come with mortgage insurance fees due to HUD, making them better suited for long-term financial planning rather than short-term needs.
Guaranteed Access: Funds are insured by HUD and cannot be frozen or eliminated, regardless of market conditions.
Flexible Options: Borrowers can access funds as a line of credit, scheduled monthly advances, a lump sum, or a combination of all three.
Growth Feature: Unused funds in the credit line grow over time, increasing your available equity.
No Mandatory Payments: There are no required monthly payments, so you won’t risk damaging your credit or facing foreclosure due to missed payments. Voluntary payments are allowed without prepayment penalties.
Lasting Stability: Designed to be the “last loan you ever need,” reverse mortgages provide a stable solution for retirees seeking long-term financial flexibility.

Which Should You Choose?
If you need short-term financing and can handle mandatory monthly payments, a HELOC might be the better choice. However, a reverse mortgage offers unmatched flexibility and security if you’re looking for a long-term solution with guaranteed access to funds and no mandatory payments.

What Makes a Reverse Mortgage Line of Credit a Better Option?

A reverse mortgage line of credit offers unique advantages that make it an appealing choice for many retirees:

Growth Feature: Unlike a HELOC, a reverse mortgage line of credit grows over time on the unused portion. This means the amount available increases if you don’t use all the funds early in the loan term, providing greater financial flexibility for future needs.
Guaranteed Access: HUD insures the funds in a reverse mortgage line of credit and cannot be frozen or closed by the lender, even during market fluctuations. In contrast, a HELOC can be closed or frozen at the lender’s discretion, leaving you without access to the funds you may rely on.
Long-Term Availability: A reverse mortgage line of credit remains available as long as you live in the home as your primary residence and keep up with property taxes and homeowners insurance. On the other hand, most HELOCs have a maximum draw period of 10 years, after which access to funds is restricted.

These features make a reverse mortgage line of credit a more secure and sustainable solution for those looking to access their home equity without risking losing their financial safety net.

What Are the Disadvantages of a Reverse Mortgage Line of Credit?

While a reverse mortgage line of credit offers many benefits, there are a few potential drawbacks to consider:

Higher Upfront Costs: Establishing a reverse mortgage typically involves higher upfront costs, including mortgage insurance premiums required by HUD. These costs make it less ideal for short-term financial needs.
Impact on Inheritance: If passing your home as a significant inheritance is a priority, a reverse mortgage may reduce the value of the asset you leave behind. Interest on the loan accumulates over time, which can reduce the remaining equity in the home. However, this consideration also applies to a HELOC, as borrowing against home equity inherently reduces the inheritance value.
Loan Obligations: To keep the loan in good standing, you must continue living in the home as your primary residence and keep up with property taxes, homeowners insurance, and basic maintenance. Failure to meet these obligations could result in the loan becoming due.

Reverse mortgages are designed as long-term financial tools to enhance retirement stability. If your primary goal is preserving your home as a legacy, you may want to explore other options or consult a financial advisor.

Are the Qualifications Different for Reverse Mortgages vs. HELOCs?

Yes, the qualifications for reverse mortgages and HELOCs differ significantly due to the unique purposes and requirements of each loan type:

Reverse Mortgages (HECM):
- Reverse mortgages use a residual income method for qualification, focusing on the borrower’s financial stability. This method calculates the borrower’s monthly income minus outgoing debts to ensure they have enough left over to cover living expenses.
- This approach is more accommodating for retirees, especially those on fixed incomes, as it considers their ability to maintain essential expenses rather than requiring high income-to-debt ratios.
HELOCs:
- HELOCs use an ability-to-repay method, which evaluates the borrower’s total debt as a ratio of their total income. This stricter approach is designed to ensure borrowers can make the mandatory monthly payments required for HELOCs.
- Borrowers must demonstrate sufficient income and a strong credit profile, which can be challenging for retirees with limited income or assets.

Not Sure Which Equity Option Fits You? Get a free, custom quote from All Reverse Mortgage, Inc. (ARLO™) — America’s #1 Rated Lender with a 4.99/5-star rating! Call (800) 565-1722 or click here for your free quote — simple, trusted, 100% secure!

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Have a Question About Reverse Mortgages?

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Post your question in the comments below and anticipate a personalized response from Mr. Branson himself, typically within one business day. He's here to illuminate all angles of reverse mortgages, ensuring you're equipped with the knowledge to make informed decisions. Take this opportunity to gain insights from a seasoned professional.

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21 Comments on this Article

Jerry H.
April 6th, 2025

I read that a Power of Attorney (POA) isn't allowed for a reverse mortgage. What's the reason for that? I've asked several "experts,” but none have given me a clear answer. Also, what types of loans do allow a POA?
Reply to Jerry
- Michael Branson
  April 7th, 2025
  
  Hello Jerry,
  Great question - and you're right to seek clarity. It's a common misunderstanding.
  HUD does allow the use of a Power of Attorney (POA) for reverse mortgages - as long as specific requirements are met. The confusion often comes from situations where the POA doesn't meet HUD's standards, which leads some lenders to say it's not allowed. But that's not entirely accurate.
  If the POA is properly executed, valid under state law, and includes the authority to enter into real estate and mortgage transactions, then yes, the reverse mortgage can typically be completed using a POA. HUD also requires that the borrower was competent at the time the POA was signed, and in most cases, the borrower must also sign the loan application (unless medically unable).
  We've written a full article explaining when and how a POA can be used for a reverse mortgage, including what documentation is required. You can find it here: https://reverse.mortgage/power-of-attorney-for-a-reverse-mortgage
  If you've already visited our site and liked what you saw on the calculator, we'd be happy to review your situation. We'll determine whether your POA currently meets HUD's requirements - or if there's a path to make it eligible.
  So to sum up: POAs can be used for reverse mortgages - but only when they meet HUD's guidelines. And yes, many other loan types (including conventional forward mortgages and home equity loans) also accept POAs, again depending on the lender's policies and how the POA is structured.
  Let us know if you'd like us to walk through the next steps with you.
  Reply to Michael
Robert L.
July 11th, 2023

What is the difference between a HELOC and HECM-Home Equity Conversion Mortgage?
Reply to Robert
- Michael Branson
  July 11th, 2023
  
  Hello Robert,
  Both programs have pros and cons, and the "right" choice depends on your circumstances. We have always maintained that a reverse mortgage is not suitable for all borrowers, and a Home Equity Line of Credit (HELOC) is also not the right financing option for all borrowers. A HELOC line of credit is less expensive to establish but can be frozen or closed at any time based on the creditor's decision. In the past, HELOC credit lines have been frozen, reduced, or closed due to lenders deciding to stop offering the product, banks closing, property values falling, and high unemployment, which caused the banks to require borrowers to "requalify" to obtain further draws on exiting lines and a whole host of other issues. The reverse mortgage does not have any further income requirements once the loan is closed, and the line cannot be frozen for any of these reasons (although borrowers are required to continue to live in the home as their primary residence and to pay their taxes, insurance and any other property charges in a timely manner).
  Whereas the HELOC may be frozen, canceled, or reduced at the lender's discretion, the HECM reverse mortgage grows in availability on the unused portion of the line. This means that as you have funds left in the line of credit that you still need to draw, the amount available to you grows equal to the interest plus the annual MIP accrual on your loan. And there are payments due on the HELOC that you must make in a timely manner. Those payments are usually interest only for the first 10 years, and then the loan goes into a repayment period where the loan must fully amortize in the remaining term. At that time, payments can jump as much as 200 - 300% per month.
  The HECM reverse mortgage has no monthly payment requirement, but while there is no monthly payment required, there is never a prepayment penalty, and you can make a payment in any amount at any time without penalty. This means that you can pay at any time up to and including payment in full without penalty, so if you want to make monthly payments, you can make a payment on any day of the month, and you're fine without worrying about late charges or delinquent credit if you skip months because there are no payments due in the first place. Some people are more concerned about making payments because they want to leave the largest asset to heirs; some do not have this concern because their heirs are well taken care of or have no heirs. Either way, if you plan for the future, you can make the payments and keep the equity in the home or keep the cash if that is your goal.
  It's all about you and what your goals and needs are. Review both programs and make the best educated decision for you.
  Reply to Michael
Rosemary B.
June 13th, 2023

Hello ARLO,
My husband & I are checking up on reverse mortgages. We don't need the amount our house is worth or how much that can be borrowed. We want just enough to pay hospital & medical / credit card bills, about $20,000. We can pay back monthly payments, is this allowed? We owe nothing on our house. It has no mortgage payments. Is this a good idea? After we pay off the remaining credit cards, we will have a substantial amount left to pay on our reverse mortgage. Are monthly payments allowed when paying back a reverse mortgage loan?
Reply to Rosemary
- Michael Branson
  June 13th, 2023
  
  Hello Rosemary,
  Firstly, while no payments are required with a reverse mortgage, you can make payments of any amount at any time up to and including payment in full without penalty. Secondly, with the line of credit program, you can take a portion of the line so you do not need to draw all the funds and can only take some of the money available to you and leave the rest in the line so it is available to you at a later date. Just remember that if you pay the line down to 0, the loan is paid off and closed, so if you want to keep the line open for future use, you should keep at least a small balance on the loan to keep it active. So you can use the loan for exactly the purpose you describe.
  The loan grows in available balance over time, and you only accrue interest on the funds you actually use, so there is never any interest on the line you do not use. It makes it very convenient if you ever need the money later because, unlike a bank Home Equity Line of Credit (HELOC), the line can never be cut or closed later if the lender decides to stop offering this type of loan or if you didn't use the line for long periods. However, if you know there is no way you would ever want to use the line for anything else. If you want to pay it off and know you have and will have the means to make payments until it is paid off, a HELOC from your bank may be a better option.
  The fees for a HELOC are much lower, and if you pay the loan back in a few years and never use them again, the HELOC is a less expensive option. You must qualify for the loan and pay every month or risk the credit and other issues that come with missing house payments. Still, if you have the income to do that and want to repay the loan quickly, the HELOC would be a less expensive loan. If you want a loan that you could keep for life that would grow in availability and also not accrue interest on funds you do not borrow the reverse mortgage is a better option. You need to determine your goals and which will best help you achieve your goals.
  Reply to Michael
Cathy
April 4th, 2023

Hi Arlo,
I have a question regarding the HECM line of credit. I understand that it grows over time. My question is, when the borrower has an untapped line of credit, do those funds go to the borrower at the end of the loan?
Reply to Cathy
- Michael Branson
  April 4th, 2023
  
  Hello Cathy,
  
  The "end of the loan" is when the home is sold, the borrower refinances the loan with a new loan, or the borrower passes. The line of credit available to the borrower at that time would not be paid out to anyone, including the borrower if the borrower is still living, but then, no repayment is required of the funds never borrowed. Had the borrower borrowed those funds, and the interest had accrued, that amount would have been due when the loan was paid in full from the home sale. Since the borrower did not use those funds, they are not owed, and the entire equity is available to the borrower or their heirs from the sale or refinance proceeds.
  
  Think of it like a credit card. If you had a credit card with an available line of credit of $100,000 and never used the card, then you closed that account, and no one paid you $100,000 when you closed the account. You close the account and owe nothing. Now if you started with a line available of $10,000 and every year, the bank raised your credit limit by $10,000, and in 10 years you had a line of $100,000, and you closed the account, you still would owe nothing if you didn't use the money. If you had used the funds, you would have owed the money you used and would have paid any interest you accrued on the funds you borrowed.
  
  With a reverse mortgage, if you keep your line for many years without using the money, the line available to you grows by the amount you would have accrued in interest and Mortgage Insurance Premiums (MIP) on the outstanding balance as if you had borrowed the full amount on day one. This is one of the all-time best insurance policies. If you never use the money, don't accrue any interest on it, and you or your heirs do not have to pay back any portion of the loan you didn't borrow. Your line also grows during this time so that if you need the money later, you have more money available to use.
  
  I hope this makes it easier to understand. You are not alone, as many people think there is money that is funded and set aside in an account somewhere that you get at the end of the loan. If that were the case, though, you would also be accruing interest on those borrowed funds from the day you first got the loan, even when you were not using those funds. This way, you only accrue interest on borrowed funds as needed, and you or your heirs do not repay any funds you do not end up borrowing. It's the best of both worlds. The line grows, so more money is available to borrowers later if you need it, and if you do not, you do not pay interest on the money.
  Reply to Michael
Mike B.
March 31st, 2023

Hi Arlo,
I have a HELOC. The draw period has ended. It's now in the repayment phase. The HELOC balance is less than half the home's value. Could I use a reverse mortgage to lower my payment and pay only the interest to keep the balance from growing?
Reply to Mike
- Michael Branson
  March 31st, 2023
  
  Hello Mike,
  
  HUD has rules about paying off existing liens and how much can be used based on when the existing loan was taken or in the case of HELOCs, the most recent draws if you exceed certain thresholds of the Home Equity Conversion Mortgage (HECM) reverse mortgage program, so I just need to caution you that when you talk to a lender be sure to let them know if you have taken any draws on the HELOC in the past 12 months.
  But now having said that, yes, if you meet the parameters of the HUD program, it would be a fantastic time to rid yourself of that HELOC!
  Now that you are in the repayment period, you are fully amortizing the balance (probably over 20 years) and are no longer able to draw from the HELOC anyway. The HUD HECM program requires no monthly payment but there is no prepayment penalty so if you choose to make a payment, you can at any time, but it is entirely up to you.
  Therefore, you can choose to "lower your payment" by making a payment of any amount you wish, or you can eliminate your payment if that is what you would rather do (you still need to pay your taxes and insurance in a timely manner).
  
  You might want to start with a trip to our online calculator to see what you can expect to be able to receive under the program. There is no obligation, and you never need to supply information such as social security numbers, etc.
  Reply to Michael
Bob K.
November 4th, 2022

Hi ARLO,
I enjoyed reading your informative article on Heloc's. I currently have on
that is over the $250k FDIC guarantee and my question is twofold.
Is my used balance over $250k covered by the FDIC and secondly, what happens if my lender goes insolvent? Also, assuming there is another lender that assumes my current loan, does my unused balance of the HELOC remain as is, or is no longer available?
Any help on this is appreciated.
Reply to Bob
- Michael Branson
  November 4th, 2022
  
  Hi Bob,
  Those are good questions that you should ask your HELOC lender. Your unused balance of a HELOC is not guaranteed to be available by anyone. The FDIC insures deposits, they do not guarantee that unused loan balances will be available at any time in the future. If your lender becomes insolvent or
  even just changes their lending guidelines or products available, you would be subject to those changes. If the lender becomes insolvent, the loan would be transferred to a new lender (probably through acquisition of assets from the new, stronger lender) and the new lender may or may not keep the loan active going forward. Neither the current lender nor an acquiring lender could not alter the terms of any existing funds you had already borrowed. You would be subject to the terms to which you agreed as specified in your loan documents. But either can freeze the loan and no longer issue any further advances if they decided that the loan parameters are not consistent with their acceptable risk constraints or that they no longer offer this type of financing.
  Lenders can change their underwriting guidelines and require you to "requalify" based on the new terms or based on their perceived market changes, or they can close the program entirely at any time. I don't know what the rules are about costs, when Wells Fargo did this to me in 2009, they froze the account and offered to reappraise the property at their expense, but they also wanted to completely re-underwrite the loan based on their current guidelines (and they were not insolvent). Property values had fallen at the time, and they were just concerned about their portfolio. In addition to using the new lower property values, they also drastically lowered the percentage of the value of the home on which their loan would be computed so the combination of the two dropped the amount of the HELOC they would offer to a fraction of the loan I previously had. Since I was not using the loan at the time, I chose to close the loan rather than agree to the reduced amounts.
  This is why we always tell people to compare the options when making their decisions. A HELOC is a much less costly option to start (fewer fees, etc.). However, the HELOC typically has an interest only period for about 10 years during the draw period at which time the draw period ends and is replaced with the repayment period (usually 20 years). During this time, payments can go up as much as 2 - 3 times what borrowers were paying during the draw period. The HECM has all the costs front-loaded. But the line is always available and the amount available grows on the unused portion. You should check your loan to see if it has similar features and then ask yourself what your projected income will be in 10 years when the payment increases. No one knows what the future will bring but if this is how your loan is structured and if that does extend beyond an anticipated retirement or other income changing event, it's worth considering. We get a lot of borrowers who get hit with the payment change on a HELOC and realize they are not in a position to make the higher payment with the 20-year amortization for payment in full on the balance of the loan at that time and sadly some no longer qualify for a reverse mortgage with their equity at that time.
  If you think you will only need the loan for a few years, the HELOC is probably the best option. If you think you will be there for life, a HECM reverse mortgage won't "sneak up on you" with a large payment increase and can never be frozen at the lender's discretion. They are both worth reviewing.
  Hope that helps!
  Reply to Michael
Dan C.
June 30th, 2022

Hi Arlo,
I understand that the amount of the current loan, the appraised value of the property and the "full assessment of the borrower's situation come into play:
1. Is there a percentage number between the appraised value of the property vs. the amount of the loan allowed come into play?
2. Does the credit worthiness of the applicant come into play?
Reply to Dan
- Michael Branson
  July 6th, 2022
  
  Hello Dan,
  
  I am not sure I fully understand your question so forgive me if I answer from a different perspective but I will give it my best effort. A reverse mortgage is not like a traditional forward loan in the sense that an underwriter of a traditional forward loan may look at the borrower's qualifications and if he/she feels that the borrower is not qualified enough for the requested loan amount, they may approve the loan at a reduced amount.
  With a reverse mortgage, the borrower receives a benefit or loan eligibility based on the property value, loan program, the borrower's age and then it is a matter of whether or not the borrower and property qualify under the HUD and lender's requirements. The underwriter cannot reduce the loan eligibility by 5 - 10% and offer the borrower a lower loan amount if the borrower does not meet HUD's or the lender's normal requirements. The amount a borrower receives with a reverse mortgage is still determined by the borrower's age, the value of the home and the interest rates in effect.
  The older the borrower, the higher the percentage of the home's value (up to the maximum HUD lending limit) the borrower will receive under the program. The higher interest rate, the less the borrower will receive. This is why lender's use a reverse mortgage calculator based on the HUD calculations. HUD posts their Principal Limit Factor Tables on their website at https://www.hud.gov/program_offices/housing/sfh/hecm. To see what you can expect for your age, you need to be sure to use the age of the youngest borrower, the expected rate (not the initial rate if it is an adjustable-rate loan) and the value will be the appraised value or HUD lending limit (which is currently $970,800), whichever is less.
  
  HUD does have the ability to use a set-aside to pay the taxes and insurance on the property under certain circumstances that are laid out in their financial assessment guidelines that will help some borrowers that might have otherwise been declined due to certain credit history issues or those who are short of the residual cash requirement, but you would need to speak with your lender to determine if that would work for your circumstances.
  Prior to 2014, the credit of a reverse mortgage borrower was not a factor in the underwriting of the loan but the program came under intense scrutiny by congress due to the substantial losses it was experiencing. Even with no mortgage payments, borrowers were defaulting at a very high rate on taxes and insurance and the losses were endangering the Mortgage Insurance Premium (MIP) fund.
  HUD needed to take steps to shore up the program and some in Congress were calling for the elimination of the reverse mortgage program to protect the MIP fund. In 2015 HUD implemented the financial assessment guidelines they announced at the end of 2014 which now requires lenders to take the credit worthiness of the borrowers into consideration for reverse mortgages.
  Reply to Michael
Ron
January 29th, 2020

I have a line of credit reverse mortgage balance. If I refinance how that would affect the line of credit. We are 65 now, could we get a higher percent of the property value?
Reply to Ron
- Michael Branson
  January 30th, 2020
  
  Hello Ron,
  If you choose to refinance your current loan, the balance owed would be repaid with the new reverse mortgage. Any unused portion of the line would not be part of that pay off because you don't have to repay what you didn't borrow.
  So basically, the entire motivation for a refinance would have to be measured based on your current benefits as determined by current circumstances. Those circumstances are your ages, current interest rates and HUD guidelines in effect when you look at the refinance.
  Some borrowers would benefit greatly from a refinance who had higher interest rates and whose property values have increased and might also be under HUD's old parameters where the MIP renewal is 1.25% instead of the current .50%.
  However, you have to remember that you are going to pay the difference between the up-front mortgage insurance premium (UFMIP) that you paid on the initial loan and what the UFMIP would be at the higher value and HUD's current initial rate which is higher than it was years ago.
  Basically you would need to visit our HECM refinance calculator and see what your benefits would be above and beyond the amount left in your current line of credit to determine the actual benefit of a refinance under today's HUD parameters.
  Remember, lenders can't even do a refinance unless your loan meets certain conditions such as you are receiving adequate additional funds and it has been at least 18 months since your last loan. In any case, it probably wouldn't hurt to check if you believe you would receive more money under the refinance at this time (a lower interest rate alone is not a large enough benefit in HUD's opinion to lose funds or pay additional costs to refinance).
  Reply to Michael
James L.
October 15th, 2019

I started out with a reverse mortgage, went to a regular mortgage. Can I go back to a reverse mortgage?
Reply to James
- Michael Branson
  October 15th, 2019
  
  Hello James,
  
  As long as you do not have an existing reverse mortgage, you qualify for the loan under the current program parameters (you live in the home, your income and credit qualify and the property still meets HUD's minimum requirements) and your last loan did not result in an unpaid loss to HUD, you can certainly get another loan on this property or another if you move at this time.
  Reply to Michael
Adrienne
April 9th, 2019

I have a high equity position in my property, will an inside appraisal be needed for a HELOC?
Reply to Adrienne
- Michael Branson
  April 9th, 2019
  
  Hello Adrienne,
  
  I can tell you that for a Home Equity Conversion Mortgage or HECM reverse mortgage, the lender would require a full appraisal which would include an inspection of the interior of the property. But because we do not originate HELOC loans, I honestly cannot tell you every bank's requirements for the loans.
  The last several borrower with whom I have spoken who had obtained HELOC loans recently all indicated that they were required to have full appraisals performed of their homes which included interior inspections, but I don't know if that was because of the loan amount, the loan to value or if it is now a policy for all Home Equity Line of Credit loans. I am afraid you would have to speak with the lenders who offer this product to get this information.
  Reply to Michael
Jason Wheeler
May 11th, 2016

Great blog. I feel like Reverse Mortgages really get a bad wrap by financial planners and consumers. They surely are NOT for everyone but with a really good loan officer like obviously you are, Senior should take a close look at what Reverse Mortgages offer and evaluate the costs based on their retirement goals.
Thanks for the perspective Mike!
Reply to Jason