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Choosing Between Home Equity Line of Credit (HELOC) vs HomeSafe

The HomeSafe® Select is an adjustable product, which offers a standby line of credit. Borrowers who are considering a Home Equity Line of Credit (HELOC) will find that this may be a better alternative. It gives borrowers the freedom and flexibility to access funds as they wish by providing a LOC with no required monthly mortgage payments.

 

As Finance of America Reverse LLC (FAR) continues to innovate in the proprietary reverse mortgage market, it becomes increasingly important to meet the needs of our customers with various rate and pricing solutions.  As a result, FAR introduced a premier suite of financial tools, called HomeSafe®, that empower our customers with personalized plans to meet their retirement financing needs.

 

Depending on your financial situation, there are several factors that could make the HomeSafe® Select LOC a better option over a HELOC. As mentioned above, the HomeSafe® Select LOC doesn’t require a monthly mortgage payment, so there is no danger of defaulting on the loan by not making mortgage payments.

 

Like the other HomeSafe® products the loan amounts is up to $4,000,000.  As long as the borrower meets the loan requirements the HomeSafe® LOC line is available for a draw period of 10 years, it can be extended and the loan is not called due until a maturity event occurs. With a HELOC, the bank can reduce or close the line of credit at any time. It should also be noted that even though the Select is a non-recourse loan there is no upfront or monthly Mortgage Insurance Premium (MIP). The following chart outlines the key differences between FAR’s HomeSafe® Select and a HELOC.

 

Loan Feature HomeSafe® Select HELOC
     
Financial qualifications Age 60* plus, Home equity, Financial Assessment to determine the borrower’s ability to pay taxes and insurance or a Life Expectancy set-aside is required to pay for future

No employment requirements

 Home Equity, Debt to income Ratios, credit history,

Steady employment.
Monthly mortgage payments None Required
Payment Terms Loan is due upon a maturity event – borrower no longer resides in the property as their primary residence, borrower passes away.

No prepayment penalty

 Some have balloon payments.

End set term repayment is due.

Possible pre-payment penalty.

If the borrower defaults on the monthly payment they could lose their home to Foreclosure.

Lender can reduce or cancel the LOC
When loan value exceeds home value Non-recourse loan, no adverse effects Borrower is always responsible for full balance

 

FAR follows the same Financial Assessment qualifications as the FHA HECM product. The HomeSafe® is a non-recourse loan and the borrower or their heirs have no personal liability for repayment of the loan and can never owe more than the loan amount or appraised value, whichever is lower.  There are no prepayment penalties, however on the fixed rate HomeSafe® a borrower cannot redraw prepaid funds.

 

Reverse mortgages, with their built-in consumer safeguards and flexible options for accessing equity, are transforming the way people approach retirement. With any financial decision, it is important to carefully consider your options. The right financial advisor can guide you to a great decision that works.

 

*For certain HomeSafe® products only, excluding Texas and Utah where the minimum age is 62.

This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.

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