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Home Equity Line of Credit or Reverse Mortgage Line of Credit?

Home Equity Line of Credit or Reverse Mortgage Line of Credit?Think all home equity credit lines are the same? Watch this 2 minute video and learn that there are some surprising differences!

This video is more marketing than educational, but it makes a point.  There is a lot of misinformation on reverse mortgages, especially how the related credit line works. If you freeze the video at 16 seconds or minute 1:18, the tradeoffs listed on the screen are more legible.

Although I doubt it was mentioned to the audience, the closing costs can be high if the transaction is done in the usual way.  However, the closing costs drops substantially when the mortgage is properly structured.

For those younger borrowers that plan to stay in their property for a long time & have a low or no existing mortgage, the reverse mortgage credit line is far superior.

The credit line growth compounds monthly and will likely double every 10 to 12 years.  The value of the home does not affect the growth of the credit line.

For example, if the borrowers are 65 and the home is worth 500,000 with no current mortgage, the credit line starts at 271,000. In 10 to 12 years it likely grows to $542,000 and in another 10 to 12 years it is up to $1,084,000, likely exceeding the value of the home.  The borrowers could withdraw the $1,084,000 and put it in the bank, sell the house at its current value and FHA covers any loss. The borrowers’ credit is not adversely impacted from the “short sale”.

It seems that financial planners are only now starting to understand what an effective estate planning tool this can be.

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