HECM vs HELOC

Repay an Amortizing HELOC

HELOCs do provide a backup financial resources for retirees. The issue is when the HELOC starts to amortize and no further draws may be made. At that point, the borrower may not have sufficient income to qualify for a new HELOC. A HECM can help in these circumstances. Its proceeds and availability are guaranteed and the income requirement is a fraction of those normally required for a HELOC or for a Home Equity Loan.

But this is only the beginning of some very substantial differences between a HECM and a HELOC. Look at the table below….

HECM Forward Mortgage/HELOC
Very Low Income Qualifications Yes 4X the Monthly Payment
“Age-in-Place” Protection Yes None
Government Insurance/Guarantee on Unused Line of Credit Yes Private Companies. Not Government
Government Insurance/Guarantee on Lender Performance Yes Only in certain cases
No deficits on sale Yes No
Principal Limit Growth Yes No
Disbursement Options Yes No
Guaranteed Occupancy Monthly Annuity Yes No
“No monthly payment” option Yes No
Non-Borrowing Spouse Protection Yes No
Access to funds Yes, if not in default HELOCs can stop draws after 10 years

Let’s look at the bigger differences….

Low Income Qualifications

The first big difference is that very low income qualification for a HECM.  Most forward mortgages will require that you have four times the principal and interest payment in monthly income.  The HECM only requires that you meet the minimum receive dual income requirements

Age-in-Place Protection

The next big difference in features is that the HECM provides an age in place protection.  This protection allows you to remain in your home provided you stay current on your property charges for as long as you live in the home

No Deficits on Sale – Fully Non-Recourse

The other big feature of the HECM is that there are no deficits on sale if the home is worth less than the balance on the mortgage.  It is a non-recourse loan.  Many states do allow non-recourse mortgages on the original purchase transaction.  However, you generally lose that protection if it is a refinanced mortgage or a second mortgage like a home equity line of credit

Growing Line of Credit

Another useful feature of the HECM is that its line of credit if unused will grow over time reflecting a minimum anticipated appreciation in the property as well as their release of interest reserves not required as your remaining life gets shorter.  This feature is especially unique to the HECM

Optional Mortgage Payment

And of course, with a reverse mortgage you have the option to make or not make a monthly repayment and not have your credit score came anyway impacted

Insured Availability of Funds

Finally, a feature that many people are not familiar with.  HELOCs generally stop you having a draw after 10 years, so that you can start to repay the principled you borrowed.  What many people may not be for mayor with is if the bank thinks you are unable to a loss of income or conceivably due to a substantial drop in property values to repay the HELOC, they can restrict your access to those funds.  Unless you are in default, your access to funds are insured by the Federal governments under the HECM program

So, you can see in many features the HECM offers the consumer a greater array of protection.

Check our eBrochure and look at the Video. It has an excellent example of how a HECM can help.

Would you like to learn more?

  • Click here for eBrochures, eBooks, FAQs and Videos!
  • If you would like to know how much you potentially qualify for, and whether you possibly have adequate monthly cash flow, go to the HECM WIZARD and input your information.
  • If you would like to reach out and talk with me, fill out the information on Contact Me or email at st.john.bannon@JMCapGroup.com