The adjustable rate reverse mortgage (RM) has a line of credit option that may appeal to many potential borrowers. Instead of taking all the available cash out at closing as a lump sum, the borrower can leave the available funds with the lender in a Line of Credit (LOC) facility.
Borrowers do not need to complete a special application or jump through extra hoops to use the LOC option. The funds left in the LOC are insured by the FHA, so they are safe.
Furthermore, the reverse mortgage LOC
has several features that are superior to traditional lines of credit
from a bank or through a home equity line. The RM LOC is non-cancelable
and non-freezable, and its terms cannot be changed. The line can be
drawn upon and paid back unlimited times, without incurring a reduction
or freeze in the amount of the credit. The funds in the LOC remain even
if the property value declines or the borrower's credit rating erodes.
These features offer a tremendous amount of security and financial
flexibility as people live with investment ups and downs while needing
to address financial needs that occur.The RM LOC also has a growth feature that is highly attractive. Funds left in the LOC will grow at the same monthly compounded interest rate, which includes the 1.25% charged for FHA insurance, that the borrower is paying on the loan's principal balance outstanding.
Next week we will look at how this works.
Until then, be well.
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