Have you ever thought about what to do with all the equity that is trapped in your house? Well, I have written a lot about reverse mortgages and hopefully by now you understand that reverse mortgages can be a great tool and a fantastic way to access some of the equity that is trapped in your home.
Well, I want to introduce a new idea and put a twist on the reverse mortgage and a HELOC (Home Equity Line of Credit). Traditionally, reverse mortgages have always been a replacement for any mortgage that you currently have on your home since reverse mortgage are required to be the only loan on the home. While a HELOC is a great way to access some of your home’s equity without having to pay off your current mortgage, you then incur a 2nd mortgage payment.
However, a HELOC can sometimes be misunderstood and can ultimately be dangerous for retired homeowners. Let me explain why. First, when you take money out of a HELOC, you then incur a 2nd mortgage payment. Plus, these loans are typically adjustable rates which means when rates go up, your payment goes up. Additionally, these loans have a specified period called a draw period, this is usually 10 years. During the draw period you are only required to pay the interest due. However, after the draw period ends, you enter the repayment period in which the payment becomes fully amortized. This can cause your payment to shoot through the roof because it becomes principal and interest payable over a 10- or 15-year period usually.
So here is the twist, there is now a 2nd mortgage option that is a reverse mortgage product. This means that you can keep your current mortgage in place and now you can get a 2nd mortgage to access some of the equity in your home and you do not need to make any monthly payments on this 2nd mortgage program. This is a fantastic opportunity for homeowners who have a low interest rate on their current mortgage and do not want to pay off their mortgage, but they want to access some of the equity in their home without increasing their monthly expenses. Additionally, this can be a great option to pay off a current HELOC that requires monthly mortgage payments and replace the HELOC with a fixed rate mortgage that does not require any monthly payments. Amazing, right?!
This loan program is allowed for homeowners starting as young as 55 years old and it has no age limit! Plus, this program requires you to have a mortgage that you are current on and paying both principal and interest each month. The home must be your primary residence and you must have a FICO score of at least 600. You must also be current on your property taxes, homeowner’s insurance and HOA dues. This program can be used to pay off an existing HELOC or second mortgage, to consolidate credit card debt, to pay for home improvements, to fund long-term care or other medical expenses, to buy a vacation home or use for whatever you want! There are no restrictions on how you use the money, it is your equity, and you can spend it however you like!
This second mortgage program is not for everyone, but it can again be a great alternative to doing a traditional reverse mortgage and a great alternative to doing a HELOC.
