Seniors, 65 years or older, who own their home may be able to get the equity out of their residence without selling it. Home Equity Conversion Mortgages, or HECM, allows you to tap into what your home is worth and still be able to live in the residence. There are a couple of different types of reverse loan options. The one you choose will determine how your loan is disbursed.
Line of Credit
This first type of Home Equity Conversion Mortgages is a line of credit. Instead of getting a lump sum single disbursement, many borrowers choose to open a line of credit. This allows them to access funds as they need them. In order to get the money, the borrower has to submit a written request to the company servicing the loan.
One of the best things about this is that the line of credit can grow over time. It doesn’t earn interest. Instead, the line of credit takes into account that the home appreciates in value and that the borrower has grown yet another year older.
Single Disbursement Lump Sum
Not everyone is interested in having to present a written request for funds every time they need to tap into their funds. Others would rather get a single disbursement. The only problem is that if the borrower wants more money later, he or she will need to refinance later.
Of course, the borrower can choose to preserve some of their home equity by taking less than what he or she qualifies. An example of this is the borrower is eligible for $150,000 but only needs $25,000 to fix their roof. He or she could take the smaller amount instead.
Term Monthly Payments
Some choose to gain access to their funds by receiving monthly payments instead of a line of credit or lump sum. One option is the term payments. This allows borrowers to receive monthly payments for a set amount of time. For example, if the borrower is 65 and he or she wants to defer social security until age 72 in order to receive maximum benefits. This person could choose to take term payments on their Home Equity Conversion Mortgage for seven years. Each month he or she will receive the same amount, even if the value of the home diminishes during that time.
Tenure Monthly Payments
While term payments can help borrowers bridge the gap between retirement and the beginning of social security, others choose to receive monthly payments for as long as they live in the house. Again as with the term payments, the borrow will receive the same monthly payments. The payments will only cease when the borrower permanently leaves the home or passes away.
Most Home Equity Conversion Mortgages, no matter what payment option is chosen, don’t require repayment as long as the borrower remains in the house. With the line of credit and term payment options, monthly payments may be required sooner. The loan specialist should explain the terms and conditions prior to closing.