Difference Between HECM & HELOC

Difference Between HECM & HELOCA Home Equity Conversion Morgage or HECM is also called the reverse mortgage. A senior reverse mortgage enables seniors who are 62 of age and above access a portion of their home’s equity and receive tax-free payments without paying the monthly mortgage. While HELOC or Home Equity Line of Credit is a setup loan which has a maximum draw amount for a stated period. The period is between 10 to 20 years. The borrower is required to pay both the principal and interest of the loan through a single payment or in installments. The senior reverse mortgage is available in adjustable and fixed rates, the lump sum payment option is available with a fixed loan rate and the option on the line of credit is available on an adjustable rate loan. In Home Equity Line of Credit, the payment is adjustable, but some of the lenders may offer an alternative. In Home Equity Conversion Morgage the borrower does not make any monthly mortgage payments. The loan is due only if the borrower dies, moves out of the house or if the borrower sells the house. In Home Equity Line of Credit, the borrower is required to pay back the borrowed funds including the interest within the given period. HECM has a unique feature, the line of credit growth rate. This means if the unused portion of the line of credit will increase regardless of the value of the home. In HELOC the value of the initial credit does not change, and the lender can cancel or reduce the line of credit under given circumstances. In HELOC if there is a change in the income and one is not able to make the monthly payments the lender may start the foreclosure, or they could even be forced to sell the house, but in the reverse mortgage, all draws are required to be requested. In the reverse mortgage there is an age limitation, 62 years and above but in HELOC there is no age limitation. Choosing either the reverse mortgage or the HELOC depends on the retirement goals and the individual’s particular situation. Some of the questions you need to ask yourself when choosing either the reverse mortgage or the HELOC are
1. Do you want to live in your home for a long?
2. Will you pay off the loan balance soon?
Before you agree on one of the two options, you need to get proper information from a trusted financial advisor.