HECM vs HELOC: What are the advantages?

HousingWire recently spoke with Adrian Prieto, SVP of wholesale and third-party relationships at Longbridge Financial, about the advantages of HECMs and how they better serve homeowners aged 62 and older. 

https://www.housingwire.com/articles/hecm-vs-heloc-what-are-the-advantages

“Unlike HELOCs, reverse mortgages and jumbo reverse mortgages are designed specifically to help seniors manage their cash flow. They also offer senior homeowners more flexibility – most notably, through optional monthly mortgage payments¹. And with a HECM, seniors cannot be locked into any possible payment spikes. That’s why it’s a much better product for retirees. Unfortunately, many who could benefit from it have never considered it.”

“The HECM program also offers more flexibility as compared to a HELOC. While HELOCs require money to be disbursed as a revolving credit as needed during a designated draw period, HECM offers several options for receiving funds. With a HECM, money can be disbursed either via a one-time lump sum, monthly payment, line of credit – or a combination of these methods. Plus, any unused portion of a line of credit can grow over the life of the loan, which is not the case with a HELOC.

Another advantage of HECMs over HELOCs is that they are less risky in terms of repayment. With a HECM, there is no deadline for paying back the loan. The loan does not become due until the final borrower no longer lives in the home, but they must continue to meet loan terms and use the home as their primary residence. And since a HECM is a non-recourse loan, the borrower and their heirs are not required to pay back more than the value of the home. 

With a HELOC, the loan typically becomes due after ten years. However, making interest-only payments or paying the minimum required each month will not pay off the line of credit by the end of the 10-year period. In these cases, the bank may require a balloon payment – a larger, lump-sum payment that covers any remaining balance. This requires the borrower to potentially come up with thousands of dollars at once to eliminate their debt.”