Top Ways for Retirees to Lock In Home Equity—and Grow It, Too

For many retirees, the most important aspect of their retirement portfolios is stable investments. But what if you could find an investment that not only grows, but is also guaranteed by the federal government? Enter: reverse mortgages, and specifically the line of credit option available through the federally-insured Home Equity Conversion Mortgage pr oduct. The HECM program allows borrowers aged 62 or older to tap into their home equity in the form of a non-recourse loan. Borrowers can access their reverse mortgage proceeds in a few different ways: as a monthly term or tenure payment, in one lump sum, as a line of credit, or some combination of these options.

Pros of getting a reverse mortgage line of credit

Depending on your situation, there are several benefits to going the line of credit route for a safe, predictable way to lock in and grow a portion of the value of your home equity. 1. Lock in your home’s current value By taking out a HECM line of credit, you can lock in your home’s current equity value and shield it from potential drops in valuation down the road. 2. Take advantage of today’s low interest rates. While lines of credit must be taken at an adjustable interest rate, you have the benefit of starting off with today’s historically low rates, allowing you to borrow more. 3. Enjoy the line of credit’s growth feature Not only can the line of credit help lock in your home’s current value, but it can also help you preserve the equity in your home and continue to access it as your home appreciates. That’s because unused portion of a HECM line of credit grows each month at the current rate of interest plus 0.5%, giving the borrower access to more proceeds down the road. 4. Delay the need to tap into your retirement accounts Taking a reverse mortgage line of credit can help borrowers prevent or delay the need to tap into their retirement accounts, suggests new research published in the Journal of Financial Planning. Especially in times of down markets, drawing from your line of credit rather than cashing in on some of your investments can protect your portfolio and keep your investments intact. 5. It’s guaranteed—regardless of market fluctuations Because HECM loans are insured by the Federal Housing Administration, you never have to worry about a lender freezing your line of credit. You are guaranteed access to your reverse mortgage proceeds, and you aren’t required to pay back your loan until you pass away or leave your home. Contrast that with home equity lines of credit, where lenders can freeze access to your proceeds if your home’s value takes a hit, or if you’re not able to make payments on time.

Alternatives

Reverse mortgages aren’t for everyone, and the line of credit may not be the right option for you, depending on your goals and needs. Depending on your situation, a home equity line of credit could be another option. Additionally, because lines of credit grow over time, borrowers are typically left with significantly larger loan balances from the time the loan was closed. If you’re looking for ways to access your home’s equity and are considering the reverse mortgage line of credit for its predictable growth features, use a reverse mortgage calculator to find out more today. We’re here to answer your questions and help figure out what’s right for you.