Reverse mortgage and home equity line of credit comparisons

A lot of people aged 62 and older are searching for ways to increase their funds during their retirement years using the equity in their homes.

Two options come to mind: a home equity line of credit and a home equity conversion mortgage, aka reverse mortgage. It helps to explore the differences between these loan products to find out which one is best for your situation.

Here are several key differences:

• No monthly payments are required on reverse mortgages. The loan is repaid when the borrower moves out, sells the home or passes away. A regular home equity line of credit does require a monthly payment. Normally, a monthly interest-only payment is due during the first 10 years, and then principal and interest for the remainder of the term.
• The balance on a reverse mortgage line of credit grows over time, which increases the available funds to borrow. The maximum credit limit is fixed on a regular home equity line of credit.
• There is no risk of foreclosure on your home due to not making payments with a HECM (reverse) mortgage. You do need to pay the property taxes, homeowners insurance, and homeowner association dues, and keep up the maintenance of your home. If payments aren’t made on a regular home equity line of credit, there is a risk of foreclosure.
• With a home equity conversion mortgage, there is no recourse. This means the borrowers and heirs will never owe more than the home’s value. This is due to consumer protections placed on these loans by the Federal Housing Administration. On a regular home equity line of credit, the borrowers and heirs are responsible for the loan.
• Funds can be obtained in several ways. Borrowers can choose to take lump sums, regular monthly disbursements or use as a line of credit and pull funds out as needed. On a regular home equity line of credit, funds are drawn out as needed but cannot be set up as consistent monthly disbursements.
• The HECM line of credit stays open for as long as the borrower lives in the home. With a regular home equity line of credit, funds are typically drawn out during the first 10 years. Then, repayment starts and continues through the term of the loan.
• HECM reverse mortgages are available to homeowners age 62 and older. They are designed specifically to help older adults with their retirement funds. On the other hand, home equity lines of credit require qualification based on credit scores, income and debt-to-income ratios.
• HECM available lines of credit are not affected by market changes. However, regular home equity lines of credit are in jeopardy of being frozen during downturns in the economy. 

It's important to consider both options carefully and consult a financial advisor to determine which best suits your financial situation and long-term goals.