Putting together the pieces of a retirement plan traditionally consists of social security, personal savings, and pensions or retirement funds. Today, more and more retirees are adding another important piece to their well-structured retirement plan: the equity in their home.
In fact, older American homeowners have accumulated over six trillion in total home equity, representing over 80 percent of their overall net worth. There's no question that a home equity line of credit is an important piece of a comprehensive retirement plan, but not all home equity line of credit loans are the same.
If you are 62 years or older, here's some good news: You may be eligible for a home equity line of credit with enhanced benefits. It's called a reverse mortgage line of credit loan. Over one million savvy Americans have taken advantage of the significant benefits of a reverse mortgage, and that number continues to grow.
And there are several major benefits of a reverse mortgage line of credit. The primary benefit is flexible payment options. A reverse mortgage line of credit gives you more flexibility and control of your finances than a traditional home equity line of credit, and here's why.
With a home equity line of credit, once you start to draw down on your line of credit, you're required to make regular payments, which increase as you draw additional funds month after month. For a while, that payment may be interest-only, but after a set period of time, you'll have to start paying back the principle as well, which will make your monthly payment substantially higher until your loan is settled.
With a reverse mortgage, you have a flexible payment option, and that means you can choose to pay as little or as much as you like each month for as long as you live in your home. If you'd like to pay down the principle and interest of your reverse mortgage early, feel free to make monthly payments of any amount you'd like with no prepayment penalties. Or use the benefits of a reverse mortgage line of credit, and take advantage of the flexibility to make no monthly payments at all. That's right, no monthly payments at all.
Of course, as with any home secured loan, you'll still be responsible for paying property taxes, homeowner's insurance, any association fees, and maintaining your home in good shape. The bottom line is that a reverse mortgage line of credit puts you in control of your monthly payments, allowing you the flexibility to manage your cash flow.
And there are even more benefits, like the line of credit growth feature. Once you secure a traditional home equity line of credit, the total amount you can borrow is set at the time of the signing of your loan. But with a reverse mortgage line of credit loan, the unused portion of your credit line actually grows over time, independent of your home's value. That means that the less you take up front, the more you'll be able to borrow later. As long as you meet your loan obligations, your reverse mortgage line of credit can't be reduced or revoked by the lender.
For even more flexibility, you can choose to convert the line of credit into regular monthly installments at any time in the future. This is a great feature for funding home health care, or the need for consistent monthly cash flow. And there's more. As opposed to a home equity line of credit, a reverse mortgage has something called a non-recourse feature. This ensures that you'll never owe more than your home is worth.
And the last big benefit: You can enjoy the security of knowing your reverse mortgage is insured by the Federal Housing Administration.
Flexible payments. Credit growth. Payout options. Non-recourse. Security. A reverse mortgage line of credit all builds to one big benefit: control over your finances. So, if you're 62 years or older, a reverse mortgage line of credit loan could be the right choice for you.