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YourHub.com \\ Stuart \\ Stories \\ Senior Scene

Benefits of a Reverse Mortgage Line of Credit

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Contributed by: Karen Morrow on 5/7/2007

A line of credit (or credit line) works like a bank account. At the beginning of your loan, all of the available funds are sitting in your account. You choose when to make a withdrawal and how much you desire to receive at a time, and you're only charged interest on the portion you have actually received.

Here is a tip: One of the nicest things about the Home Equity Conversion Mortgage or Reverse Mortgage is that your available funds really grow like a savings account! Even better, the line of credit grows faster than most conventional savings accounts, so it works to your advantage to keep as much of your money as you can in the originator's "bank" rather than your own.

Technically, the rate of your loan's growth is based on this equation: your current interest rate plus 0.5 percent, all divided by 12 (because it accrues each month). If for example, the interest rate on your loan is 6 percent, the math would look like this:

1. 6 percent + 0.5 percent = 6.5 percent
2. 6.5 percent /12 months = 0.54 percent
3. 0.54 percent = your percentage of growth

Your quarterly loan statements, which describes to you how much you've borrowed up to that point, will highlight the interest you've earned on your unused funds.

Now, you may be thinking that 0.54 percent doesn't sound like much, and it isn't if it was growing on $100. You would only gain 54 cents. However, with a reverse mortgage, we're talking about large sums of money.If your loan amount is $100,000, using the example of a 6 percent interest rate above, you have earned $540 your first month for a new total of $100,540! Credit lines compound monthly, which means that every month your money will grow, and every month the rate is applied to the new total. So, if you don't withdraw anything from that $100,540, you would earn interest based on the above calculation on this new total ($100,540, not the previous amount of $100,000), which comes out to about $543 the following month. Each month after that, the new total would go through the same calculation, and after just one year, if you didn't withdraw any money, you would earn $6,672!

The line of credit is a good choice if you have a monthly budget in mind and have taken into account large or unexpected costs, like vacations, or medical bills. Also, it is a wonderful source of money for starting your own business or making a solid investment.It requires some planning ahead, but receiving a line of credit is a great way to manage your Home Equity Conversion Mortgage or Reverse Mortgage payments.

If you have any questions, please feel free to call me at (772) 283-1890.

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