What are the 7 Differences between a Reverse Mortgage Line Of Credit and Bank Line Of Credit? The differences may astound you!
Retirement is changing, and many are now asking the question “Will I have enough money to last me all of my retirement?” The simple answer is NO, the majority of boomers retiring now will NOT have enough to sustain them throughout retirement, unless they shift their thinking.
Some will need to curb their lifestyle, others may have to find employment, but for others, they will access the little known features of the Newly Restructured Revere Mortgage Line of Credit. And the benefits to those who do, will be significant.
Sometimes an advisor will say to me that having their client just get a regular line of credit is the best option. And quite frankly, sometimes it is. But for most, it will not be. So I normally will ask the advisor/person if they know the difference between a Reverse Mortgage Line of Credit and the Banks. They typically don’t.
So below is a quick guide on the 7 differences and how they could make a huge difference in a client’s retirement.
HECM REVERSE MORTGAGE LINE OF CREDIT
Minimal Income Requirements (Must show that you have enough income to meet basic obligations)
Minimal Credit Score Requirements (Any By Minimal We Mean None)
Loan Cannot Be Frozen, Reduced Or Canceled (as long as conditions of the loan are met)
Unused Line Of Credit Grows, Regardless Of Home Value (THIS IS KEY!!)
No Monthly Mortgage Payments Required
Non –Recourse Provision Means You Can Never Be Required To Repay More Than The Home Is Worth
To be fair, the acquisition costs of a standard bank line of credit may be less than a Reverse Mortgage, however the benefits of the HECM Line of Credit on Retirement Outcomes far outweigh any the initial gaps. #4 clearly shows this. See below for the difference.
“As a CFP professional, I was pleasantly surprised the learn that (1) The amount of home equity that a client can access in today’s low interest environment and (2) the fact that the amount of home equity that a client can access grows over time. This is quite compelling vs a home equity line of credit”
The fact that a client can set up a Line of Credit with minimal acquisition costs and that it can grow and provide liquidity when they need it is a surprise to most advisors. See Post on the 10 Benefits of A HECM Reverse Mortgage Line of Credit
Here is a Recent Conversation I had with a Financial Advisor
Susan: Don, are you saying that a 66 year old client with a $500,000 home could set up a Reverse Mortgage line of credit of around $240,000?
Susan: And that the unused portion balance in the line of credit has a minimum guaranteed growth rate = to the note rate and today it’s around 4%
Susan: And this will continue to grow regardless of the home’s value and even if the home depreciates
Susan: And my client can set this up for about the same as a bank line of credit
Susan: And just to be clear, even when they draw from it, they are not required to make monthly payments, but they can if they choose
Susan: So they could use this line to reduce their need to draw on the retirement savings using this instead and extending the life of their savings
Don: You got it!
Susan: Don, why wouldn’t every one of my retired clients at least consider this?
Don: They don’t know it exists!
That’s really the issue. The average advisors does not have the information to pass on to his clients. Because if they did, how many of them would simply have their clients set up a Standby Reverse Mortgage Line of Credit? Knowing its impact and Benefits. But see below.
Look at the Math
Notice this couples retirement picture in 5 and 10 years.
Observe the guaranteed growth in the line of credit.
Imagine all the options having this additional pool of money has, not only of retirement savings but the peace of mind of the client
It is fairly stunning when you think about this!
Any Retiree can have access to a growing line of Credit regardless of their homes value in the future.
What would your clients retirement be like.
I will continue to unpack this in later posts. – dg