A study released by TD Bank shows that a large number of American homeowners will be affected by the HELOC (Home Equity Line of Credit) reset over the next few years. It is also found that many of them hold misconceptions about the program and are, in fact, ill-prepared for the HELOC resets.
The Reset Years
HELOC allows its borrowers a draw period of 10 years, with monthly payments applying to interest. After this “draw period” ends, they are obliged to pay additional on the principal as well. The surge in HELOC during the recession years between 2005 and 2008 means there will be a high reset activity in the following years between 2015 and 2018, therefore, higher payments.
This is a problem for many borrowers, especially those who have not expected their payments to soar. However, some homeowners could benefit from one option that they may not have considered before: refinancing to HECM.
HECM or the Home Equity Conversion Mortgage, also known as reverse mortgage, is available to homeowners 62 years old and above. This can be done by refinancing the existing loan into his or her forward mortgage and then taking out the reverse mortgage as the new loan – the HECM LOC or Home Equity Conversion Mortgage Line of Credit.
Talk to a lending professional about your refinance options.
HELOC Vs. HECM LOC
A reverse mortgage is similar to HELOC in the way that it taps into the homeowner’s equity and allows them to take it out to fund some bigger expenses.
Yet, they also have significant differences. HECM LOC’s line of credit also cannot be frozen nor canceled by the lender and the loan is effectively secured by the FHA. HECM LOCs, furthermore, do not have reset dates and are payable only in the event of the borrower’s death or when he or she decides to move out of the house. And, while HELOC can be closed without any forewarning to the borrower, HECM LOCs remains open as long as the borrower uses the property as his or her primary residence. But one of the less-known advantage in HECM LOCs is its potential to grow significantly over the life of the loan. This is a very good benefit, especially if you are an eligible borrower and you plan to tap into your home’s equity for five or more years.
Explore the plenty of advantages from refinancing your HELOC into a reverse mortgage. Speak with your financial adviser about this option or talk to a lending professional today.