The Reverse HELOC—A Line of Credit for Life
Since 2020, many housing markets have experienced a sudden home price appreciation of close to 50% (up to 100% in some markets).
If you are one the lucky ones who invested in Real Estate in 2020 or earlier, you might be sitting on a sizable amount of equity.
(In Real Estate parlance, the word "equity" means "the value of a mortgaged property after deduction of charges against it."
If you need to tap into this accrued value, traditionally, you would have 2 options:
1) Sell the Property
2) Take out a mortgage for a portion of the value
#1 is not attractive if you want to remain in the property.
#2 might not be possible if you don't qualify because of income or credit issues, or because you already refinanced and you are enjoying a low interest rate that is unlikely to come back in the near future.
But there is a third option:
What if you could borrow a portion of this equity, AND:
the Mortgage Banker was OK with you NOT paying it back?
you could qualify for their best rate with a LOWER credit score?
your income was not a factor providing you had at least $600 left over after paying all your monthly bills?
you could either get these funds in a lump sum?
or create a perpetual line of credit?
what if this line of credit GREW every year?
what if the rate was LOWER than a traditional Home Equity Line of Credit?
what if you had NO draw period? but you could use this line of credit for as long as you live? (traditional lines of credit limit the number of years you can use it, this is referred to as the "Draw Period")
what if this line of credit gave you total control of your property?
what if, even after you pass, your loved one could CONTINUE TO USE IT?
what if the Mortgage Banker COULD NOT CANCEL your credit line, even when the economy entered into a recession? (Banks routinely cancel, freeze or decrease balances on home equity lines of credit)
what if you could get approved even if you are RETIRED?
The above are some of the most striking features of this third option.
This financial product exists! And has existed since the 1960s.
"Come on!" you may say. (That's what I said when I was exposed to it!) “How come I have never heard of this?”
The answer might surprise you:
Bad Marketing!
Yes, bad marketing! This amazing financial product was given the most rotten name! It causes confusion and invites misunderstanding.
Further, initially in the 1960s, it was marketed to low-income seniors, because the creators of it thought this market segment would have a natural need for it.
Result? Today, most people don't understand it and are not aware of its incredible power.
Do you have to be a senior? How about 55 years of age? Is that too old? I thought so when I was in my 40s...but today, let's say I had a shift of view point.
Do you have to be low income? This is a valid question, since many of the loan programs with advantageous terms are available only to low-income borrowers.
Not at all! In fact, you can be filthy rich and still take advantage of this!
How come your banker or financial planner has never mentioned this to you?
Bad Marketing!
In general, to qualify, these would be the minimum criteria:
Older than 55 years of age
Own a home that is paid off or existing mortgages are not more than 30% of its current value
Have a credit score of at least 620, preferably 660 (we'll help you get there)
Have at least $600 a month left over after paying all your bills
Filed tax returns - 2 years (income does not matter)
The above are the minimum requirements, however, if you have a business, have passive income or a pension, this financial product, in my opinion, would work even better!
Is this financial product only good to take equity out of a home?
You can use it to purchase a property too!
Say you have a lump sum of cash, maybe because you just sold your home, received an inheritance, got a big bonus, cashed out a retirement plan (401k, IRA, etc...) and you are looking at buying a new home but don't want to spend all your cash!
In others words you would like to preserve a sizable amount of cash but the bank will not qualify you for a new loan. Either because you don't have the necessary income, your credit is not perfect or you are retired, or you would like to have a competitive loan with minimum hassle!
With this financial product, as a rule of thumb, you can finance about 40% of the value of the new home you are trying to buy.
This means you get to keep 40% in cash rather than spending it all on the purchase!
In summary, the general criteria and requirements referred to in this article apply to a purchase too.
If you are interested in finding out more don't hesitate to call, write or schedule a free brainstorming consultation.
