Senior citizens age 65 or older who own a home may be able to access equity without having to sell their home. A home equity conversion mortgage, or HECM, allows you to find out the value of your home and still be able to live in residence. There are a few 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 mortgage is a line of credit. Rather than receive a single lump sum disbursement, many borrowers opt to open a series of loans. This helps them to get funds as per their requirement. To get the money, the borrower has to submit a written request to the loan servicing company.
One of the best things about this is that the credit line can grow over time. It does not earn interest. Instead, the line of credit takes into account that the home appreciates in value and the borrower gets older yet another year.
single disbursement lump sum
Not everyone is interested in submitting a written request for funds every time they want to tap into their funds. Others will receive a single disbursement. The only problem is that if the borrower wants more money later, he’ll need to refinance later.
Of course, the borrower may choose to preserve some of his home equity by borrowing less than he is eligible for. An example of this is where the borrower is eligible for $150,000 but only needs $25,000 to repair his roof. He can take a small amount instead.
term monthly payment
Some people choose to access their funds by receiving monthly payments rather than a line of credit or lump sum. One option is term payments. It allows borrowers to receive monthly payments for a specified amount of time. For example, if the borrower is 65 and wants to defer Social Security until age 72 to receive the maximum benefit. This person can choose to make fixed payments on their home equity conversion mortgage for seven years. He will get the same amount every month, even if the value of the house depreciates during that time.
tenure monthly payment
While fixed payments can help borrowers bridge the gap between retirement and the start of Social Security, others choose to receive monthly payments as long as they live in the home. Similar to term payments, borrowers will receive equal monthly payments. Payments will stop only when the borrower leaves the home permanently or passes away.
Most home equity conversion mortgages, no matter the payment option chosen, do not require repayment as long as the borrower lives in the home. With credit lines and fixed payment options, monthly payments may soon be necessary. The loan specialist should explain the terms and conditions before closing.