Get To Know HECM vs. HELOC

Many older adults face increased expenses while having limited income. Whether you are facing an expense or looking to improve your quality of life, tapping your home’s equity is a place many people turn.

There are two ways to access your home equity and if you are 62 or older, a HECM can provide significant advantages.

First, let’s define the two:

HELOC = Home Equity Line of Credit

HECM = Home Equity Conversion Mortgage

Here are the top three reasons to consider a HECM instead of a traditional HELOC:

1. The HECM is a non-recourse loan. The house is the collateral and the borrower has no personal liability for the repayment of the loan. The HELOC loan requires you to pay the loan back according the loan terms.

2. The HECM has no required monthly payments. Repayment is not due as long as you live in the home as your primary residence, continue to pay required property taxes and homeowners insurance, and maintain the home according to FHA requirements. The HELOC loan requires the borrower to make interest-only payments during the draw period (usually 5-10 years) then the payment will increase to include principal payments.

3. The HECM loan has a guaranteed line of credit growth rate. The amount of your line of credit will grow over time and cannot be frozen due to changing market conditions. The HELOC loan requires you to maintain a certain level of equity in your home or the HELOC may be closed.

If you would like to learn more about the many benefits of a Home Equity Conversion Mortgage, contact me to set up a reverse mortgage consultation. I have been helping people use HECM’s (aka reverse mortgages) since 2004.