Reverse Mortgage Line of Credit

What is an Reverse Line of Credit

A growing concept in financial planning is to utilize the line of credit feature in a reverse mortgage. A reverse line of credit (we nicknamed an R-LOC) is created by converting a homeowner’s illiquid “disregarded” home equity into accessible tax-free cash if or when needed with no required monthly principal or interest repayments.

For most people, the two largest retirement assets are investment savings and their home. However, due to its illiquidity, the home has not been a part of the retirement planning conversation. But a paradigm shift is occurring in retirement planning. Real estate is no longer a “disregarded asset” on the household balance sheet. An R-LOC (Reverse Line of Credit) now gives you access to this critical asset to help ensure your long-term retirement success.

The R-LOC is an advanced, yet simple planning strategy that can solve the retirement quandary of balancing future quality of life desires, needed cash flow requirements and protect against the uncertainties of inevitable life events. One of the greatest advantages of an R-LOC is it does not detract from an existing retirement plan. On the contrary, an R-LOC complements and strengthens your current strategies and provides the opportunity to better fund your plan.

The R-LOC capitalizes on the features of the improved federally insured Home Equity Conversion Mortgage (HECM), also known as a reverse mortgage. The U.S. Department of Housing and Urban Development (HUD) has strengthened the HECM program, drastically reducing costs by over 40% in most situations, with increased benefits and protection.

As a result, the R-LOC is now better suited for a wider range of homeowners who desire to optimize their current retirement plans without changing their lifestyle and standard of living.


How a Reverse Mortgage Line of Credit (R-LOC) Works

A Reverse Mortgage Line of Credit (R-LOC) allows a homeowner 62 years old or older to have access to a percentage of their home’s equity for use today or for a rainy day. In essence, a Reverse Mortgage Line of Credit (R-LOC) provides a new source of tax-free cash if desired or as needed, without giving up control or equity and, most importantly, providing the option to never again make a monthly principal and interest mortgage or home equity loan payment.  You are still required to pay your real estate taxes and insurance, maintain your home, and abide by other loan terms.

A unique feature of a R-LOC is that the unused available portion of the R-LOC will grow over time.  Think of it as a VISA credit card limit of $500 being raised to $1,000 the next year.  VISA did not send any money.  They just will allow the cardholder to have more access to credit.  The same is true for the R-LOC.  Because the borrower is older and HUD assumes the property is appreciating, the borrower is given more access to their home’s equity.  This is independent of the actual value of the home.  For example, a $200,000 R-LOC for a 62 year old borrower could grow to over $300,000 in ten years and to over $450,000 in twenty years.  We hope that our clients never need to use this reserve but what a blessing to have it available in addition to any other retirement accounts.  Please contact us for a more detailed explanation using your particular situation.

Reverse Mortgage Line of Credit features include the options of:

  • Available line of credit that grows over time regardless of home value or future income or credit qualifications
  • If or when interest rates increase, the available line of credit grows at the higher interest rate
  • No required monthly principal and interest mortgage payments
  • Non recourse, with no personal guaranty and no risk to estate assets
  • May close in a trust or life estate
  • Not based on health
  • No restrictions on use of cash
  • Note: you are responsible for real estate taxes and insurance, maintenance of the property and other loan terms

How You Can Benefit from a Reverse Mortgage Line of Credit (R-LOC)

Every retirement plan should include provisions for the unexpected. The challenge is being prepared for the unknown without weakening a carefully constructed blend of investments and savings.

The reverse mortgage line of credit “R-LOC”is a way to provide a ready source of tax-free cash without disrupting or interfering with current retirement plans. By tapping into the unused equity in the home an R-LOC helps to build a financial cushion that can be used for unforeseen expenses or welcomed opportunities.

Because the R-LOC creates the opportunity to access cash whenever needed and with no use restrictions, the potential retirement planning opportunities are almost limitless. Please contact us to learn more about how a reverse mortgage line of credit may augment your retirement strategies.

Want to know more about reverse mortgages, traditional mortgages or refinacing?
Call us today at 877-499-7283. Or simply complete our easy-to-use online contact form to see for yourself how Direct Finance Corp. can guide you through the Reverse Mortgage process, find the best financing for your new home purchase, or save you money by refinancing your current mortgage loan.

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