Cliff Auerswald explains why the line-of-credit option is the most popular reverse mortgage product. Unlike a conventional HELOC, a reverse mortgage LOC is insured by HUD and FHA with a lifetime guarantee that terms cannot be frozen or altered, making it more stable for retirees on fixed incomes.
A lot of mortgages people took in, let's say, 2005, leading up to the last financial crisis, were unsuitable for seniors. There were interest-only loans, there were negative amortizing loans, loans that had stated income and really a lot of those types of products were unsuitable for everyone, for many people on regular wages, let alone seniors on fixed income. So the most popular way to take a reverse mortgage, there's several different payment options. The most popular payment option is the line of credit. So the line of credit on a reverse mortgage These loans are insured by the government through HUD, Housing and Urban Development, and FHA, which is the Federal Housing Administration, which guarantees that that line of credit cannot be frozen or the terms cannot change on the borrower. And if you are looking for something to add stability to your retirement, then you definitely would be more attracted at a financial instrument that is guaranteed for your lifetime rather than a bank HELOC, which is a home equity line of credit that is typically recasted after 10 years. You have to make payments. The payments are also fluctuating because, you know, they're all adjustable rates. So it's just more about suitability and for the right person. And, uh, you know, if you're gonna have something short-term, you just want to pay off some debt or something small and might not have it very too long, a HELOC actually might be something we would even recommend over a reverse mortgage because of the costs to set them up. But if you're looking for something that's guaranteed for the rest of your life and has the backing of the United States government behind it, that, that would be the home equity conversion mortgage insured by HUD.
