Why A Home Equity Line Of Credit May Not Be The Best Suggestion For Seniors

People are continuing to live longer and longer

, many of them living well past what their retirement will fund. In other words, people are living longer than they have money to live on. For some of those seniors, there are few options as they face the crunch of a number of financial mishaps and issues including long-term medical care not covered by their insurance, rising utility costs and the general high cost of living.

In the past, these seniors were told they had to sell their home and hope to have enough from the proceeds to pay off their accumulated debts and to live out the rest of their life or try to take out a home equity line of credit (HELOC) against the value of their home. Neither of those might be the best option for seniors, as it turns out, for a number of reasons.

The HECM Saver may be the better suggestion and it is set to replace the traditional HELOC for seniors. It can be considered a hybrid version of the Reverse Mortgage and the HELOC because it has the zero payment needed feature of the reverse mortgage and fewer associated upfront closing costs coupled with the flexibility of a traditional home equity line of credit.

The reason that the HECM Saver might be the better option is simple: The HELOC requires a mortgage payment and may even force the senior into borrowing the money they would need to make the monthly payment associated with drawing from a HELOC.

A typical scenario for the HELOC might be this: The senior realizes that his furnace is not going to make it through the winter so he has to have it replaced. To do so, he opens a line of equity against the value of his home. Aside from what it takes to get the loan approved, he will also have to face paying that amount back to the bank, in essence, paying for his home all over again. Every time that he needs to return to the home equity credit fountain, he resets an amount due which must be paid back via monthly payment. For a senior who is on a fixed and limited budget, this new debt can be devastating.

The HECM Saver, on the other hand, has the same kind of flexibility, allowing the senior to open a line of credit for a rainy day or to receive monthly payment amounts instead of paying them without having to pay all of the closing costs that are associated with a standard reverse mortgage. However, to get an idea of how much they might qualify for, the senior could use the Reverse Mortgage Calculator and go from there.

It is important that the senior consider the advantages and the expenses of the HECM Saver as well as other options like the reverse mortgage before making any commitment. It is also important that once they decide to proceed, they understand and accept all of the fees and costs that are involved and that they know the many benefits that they will realize by doing so.

by: Leonard H. Franklin

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