HECM (Reverse Mortgage) VS HELOC in Retirement Planning

There are important differences that must be considered between the two options of HELOC and HECM

HECM (Reverse Mortgage)

• Can voluntarily repay sooner, but are under no obligation to do so while living in the home.
• Do not need to have regular/sufficient income or excellent credit.
• Lines of credit cannot be cancelled, frozen, or reduced.
• The borrowers are protected from lenders modifying their obligations to lend remaining funds in the line of credit for any reason.
• The principal limit will grow throughout retirement.

HELOC in Retirement Planning

• Repayments are required sooner.
• Retirees may not qualify if they do not have regular/sufficient income or excellent credit.
• Lines of credit can be can be cancelled, frozen, or reduced.
• The borrowers are not protected from lenders modifying their obligations to lend remaining funds in the line of credit for any reason.
• The principal limit of the will stay as a fixed amount throughout retirement.

Reference: Reverse Mortgages by Wade Pfau, PH.D., CFA

If your goal is to set up a liquid contingency fund, you must examine the important differences between HECM’s and HELOC’s. 

Call me to discuss these differences in more depth for your clients. 310-447-5266