How Does The HECM Reverse Mortgage Line of Credit Growth work?
Reverse Mortgage Myth
Homeowners cannot get a reverse mortgage if they have an existing mortgage.
With enough equity, borrowers may be able to pay off their existing mortgage or other debt with the reverse mortgage. The reverse mortgage must be in first lien position, so any existing mortgage must be paid off. Seniors who take out reverse mortgages are free to do anything they want with their reverse mortgage proceeds. Paying off an existing mortgage is the number one reason our clients take out a reverse mortgage.
In This Article We Will Provide Information On:
Information about the HECM Reverse Mortgage Line Of Credit GROWTH
This is another convincing argument for why every eligible homeowner should get a Reverse Mortgage. The LOC growth indicates that the pledged funds may grow very much apart from being liquid and secure.
The two factors that cause LOCs to grow are:
- LOC rate of growth: This makes the LOC grow gradually at a rate equal to the compounding rate. It can be expressed as [Interest Rate + 1.25%].
- Making payments: Every payment made to lessen the unpaid principal balance will also make the line of credit increase. The bulk of loan originators is not aware that the LOC is increased by each payment. The lesson in this is that a borrower should pay the Reverse Mortgage if they have cash available in order to increase the LOC by the amount. The boosted LOC will keep on growing at the compounding rate, available for use in the future.
Here’s an EXAMPLE of How the HECM Reverse Mortgage Line Of Credit GROWTH can work
George has a Reverse Mortgage loan outstanding of $70,000 and a line of credit estimated at $45,000. He decides to sell a car for $10,000 and plans to keep the cash for any exigencies. If he used the funds to lessen his loan outstanding to $60,000, it would decrease his interest charges and also increase his rising LOC to $55,000.
Reverse Mortgage Myth
Only low-income seniors get reverse mortgages.
Although some seniors may have a greater need than others for the monthly proceeds or lump sum funds reverse mortgages offer, most simply prefer to be free of monthly mortgage payments. Without monthly mortgage payments many homeowners find they can maintain their existing quality of life and build their savings to help with future expenses. A growing number of people who have no immediate need are taking out these loans so they can have a financial cushion for future expenses.
The HECM Reverse Mortgage Line Of Credit GROWTH CAN OUTGROW THE HOME’S VALUE
In situations where the borrower(s) hold a growing LOC for longer periods, or where interest rates rise significantly making the LOC grow faster, or if the values of the property fall, then the LOC can outgrow the value of the home. It is a welcome development, and borrowers are allowed to draw funds that exceed the value of their home.
IT IS SURE TO RISE?
If there is a lender margin of 2.75% to a loan, and the LIBOR Index of 2.00%, then the addition of these two plus 1.25% would give the loan an LOC growth rate 6%. In this illustration, even if the LIBOR Index falls to 0%, the LOC would be increasing at 4%.
This LOC is ONLY accessible on the adjustable rate products. Fixed rate loans are closed end, meaning NO LOC is established, and depositing the balance does not enable the borrower to draw it again.
Besides, it is essential to know that ONLY the AVAILABLE LOC grows. Some borrowers use all of their LOC funds and imagine why their LOC fails to rise the following month. There is merely nothing to increase.
24 CFR § 206.25
CALCULATION OF PAYMENTS
The line of credit independently or with monthly payments. If the mortgagor has a line of credit… the LOC amount rises at the same rate as the total principal limit rises under § 206.3. A payment under the LOC may not surpass the difference the present amount of the principal limit for the LOC and the part of the mortgage balance, containing accumulated interest and MIP, due to draws on the line of credit.
HUD Handbook 4235.1 Chapter 5-12. PARTIAL PREPAYMENTS
It is possible for a borrower to prepay all or part of the unpaid balance at any time without attendant penalty. Meanwhile, a prepayment of an amount that is greater than the outstanding balance is permitted. A borrow can make a partial prepayment start or boost a line of credit without changing existing monthly payments. By decreasing the unpaid balance, the borrower raises the net principal limit. All or part of the growth in the net principal limit can be reserved for a line of credit.
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Looks like you put a lot of work in here. Great information and very helpfull Brandon 07/26/2016
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The services referred to herein are not available to persons located outside the state of California.
Borrower is responsible for property taxes, homeowners insurance, and property maintenance. A HECM is a home-secured debt payable upon default or a maturity event. Some restrictions apply. This material has not been reviewed, approved, or issued by HUD, FHA, or any government agency.