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Weighing the options of accessing home equity for today’s retiree
A recent article “Is a HELOC better than a HECM?” in the Huffington Post explores the question as to what type of equity loan may be more appropriate: the traditional HELOC or home equity line of credit or the Home Equity Conversation Mortgage line of credit.
In a candid statement the article begins stating “where they overlap in meeting the needs of consumers, I could find only one situation where the HELOC might work better than the HECM,” said contributing columnist Jack Guttentag, better known as the Mortgage Professor.
Guttentag outlines the key features of a HELOC including draw periods, repayment periods and the terms of repayment. He then proceeds to differentiate the two typical options for older homeowners seeking to access a portion of their home equity.
“The HELOC borrower must pay interest on line usage immediately and must repay the entire balance within the repayment period,” Guttentag states. Such obligations we know can be especially burdensome for older homeowners who typically have a fixed income. The more of the credit line they use the larger the current and future payment obligations become. Even worse some homeowners today are experiencing ‘payment shock’ now that they have entered the repayment period being obligated not just for interest-only payments but fully amortized payments.
The dirty little secret in HELOCs came to light in 2009-2010 during the early years of the housing crash and economic crisis. Few brokers or lenders informed borrowers of the harsh reality that…
Download a transcript of this episode here.
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