In this tutorial, Cliff Auerswald of All Reverse Mortgage Company explains how a reverse mortgage can be used as a line of credit (the Saver Plan). He outlines how the credit line amount is determined by the homeowner’s age and home equity, using a $300,000 Los Angeles property and a 1950‑born borrower as an example that yields a $152,000 net line (≈50% of value). Auerswald contrasts this product with traditional HELOCs, noting that interest is only charged on amounts actually drawn, there are no pre‑payment penalties, and the line cannot be frozen because it is federally insured. He then details the credit‑line growth mechanism: each month the available balance expands by a rate composed of the bank’s note rate (e.g., 2.75% margin), the FHA mortgage‑insurance premium (1.25%), and the underlying index, resulting in a current growth rate of about 4.1‑4.15% (≈$528 extra borrowing power per month). He illustrates how, over ten years, the line can double or more depending on future interest‑rate scenarios, and emphasizes that draws are tax‑free, flexible, and can be converted to a lifetime monthly payment. The video also covers required borrower responsibilities (property taxes, insurance, primary residence) and the cost of closing fees, warning against short‑term use due to upfront costs.
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Hi there, this is Cliff Auerswald with All Reverse Mortgage Company, and today I am going to give a tutorial on the benefits of the reverse mortgage as a line of credit option. One of the most popular ways to take a reverse mortgage is to leave the funds available as a line of credit and draw from them as you need. Obvious benefits is that compared to the other reverse mortgage products where they require a lump sum only, this plan gives you lots of flexibility on how to receive your funds, and you're only charged interest to your loan balance based on what you borrow from the credit line. You're never charged interest on anything but what you borrow. And then there's an additional feature of the reverse mortgage credit line which comes with a growth attached to it. I'm gonna go over this growth rate, which is really important and often overlooked by financial planners and those looking to use a reverse mortgage as a, like, a holistic approach to real financial retirement planning. So in this case, I am working up a quote for a prospect right now on a reverse mortgage credit line option Property is worth about $300,000 in Los Angeles, and basically the amount of money you get on a reverse mortgage is just based on your age and the equity. So for a homeowner who was born in 1950, on the Saver Plan, which is the most popular right now, it gives her a net line of credit of $152,000, which equates to roughly 50% of the appraised value. And you can get more from the standard version of the line of credit little bit more, but it also cost you a lot more to set up, where FHA charges the, the finance closing costs an additional 2% upfront mortgage insurance premium, which kind of makes this option a little more expensive, but it does offer a larger line of credit. For today, I'm just going to be focusing in on the Saver option, just narrow this down and show you exactly how the line of credit works how the growth works, and I'm gonna show you some illustrations over the years on what to expect. The nice thing about the line of credit, as I said, you're only charged as you go. So if you're only gonna borrow $25,000, $50,000, your reverse mortgage owing balance is then only charged interest to that of what you borrow. The line of credit is going to be more expensive than, say, going to the bank and getting a HELOC, a home equity line of credit, line of credit at the bank. Usually at the bank they won't charge you anything. You can set that up, and if you're comfortable making payments and you just need something for a very short amount of time, we'd probably recommend that over the reverse mortgage. Even though the reverse mortgage is all we do, it's not always the most suitable option for your needs. So in this case, the line of credit— the real benefits of taking the reverse mortgage line of credit is number one, You only owe as you go. Whatever you borrow from it, that's what's gonna be charged to your balance. You could pay this thing off at any time. There's no prepayment penalties. The credit line can never be frozen on you. On traditional home equity lines of credit you get at the bank, the terms of that loan can change. This is a federally insured program. You're guaranteed to the same terms, and it can never be frozen on you. If a bank should fail, go out of business, FHA guarantees that they will transfer your loan to another bank who will service your loan at the same terms. The only requirements to keeping your reverse mortgage in good standing is that you are maintaining the property taxes, the homeowner's insurance, and you're occupying the home as your primary residence. So the reverse mortgage credit line comes with this growth, and I wanna dive into this because a lot of people often ignored or not explained properly. A lot of people come to me and say, "I was told about this credit line growth," and a lot of people somehow confuse it to be money in the bank and/or interest in the bank and is not. Think of it like a credit card. This month we close a loan and this borrower has an available credit line of $152,000. The very next month and every month after, the available credit line grows in availability based at a certain interest rate every month guaranteed. It is not contingent on your appraised value your age down the future. It's just already set up to grow automatically each month based on what rates are doing. So in this case, the only balance owed at this point after taking the reverse mortgage is the closing costs. So day one, my borrower takes out a reverse mortgage line of credit and she owes $5,000. If you want to pay it off the next day, you owe $5,000. So we don't recommend taking a reverse mortgage on a short-term solution because there are fees that are finance and costs with associating setting up this type of loan. So what happens is that the very next month, the available $152,000 is gonna grow based on the interest rates that are typically going to be charged to whatever you owe. Right now, well, there's two interest rates to be concerned with. Every month the bank makes their rate. That is called the initial rate or the note rate. The bank takes a margin. In this case, I'm quoting a 2.75% margin. Terms can change, so if you're watching this video, margins range from 2% to 3%. They fluctuate depending on your scenario, but in this case, on a free and clear property, we have a 2.75% margin. The total interest that's charged to the loan balance is 2.9% that goes to the bank, plus an additional 1.25% which FHA charges. They charge that extra rate to continue insuring the loan and ensuring all the safeguards that come with the program. It also— that insurance money goes into a fund that protects the program and pays out losses in case in the future if your loan balance is upside down, then FHA guarantees no losses to the bank who's lending this program. So in the future, you can never owe more than your home is worth when the property is sold. There's just several benefits of the insurance, and really, this is the only reverse mortgage program on the market. It is what it is. They charge 1.25% interest on top of the note rate. So the first month you set up a line of credit and you have $152,000 available— that's after we finance those fees— what's gonna happen is you're gonna get a growth on that $152,000 of the note rate and the additional insurance rate. That comes up to a total growth rate right now of 4.1%, 4.15%. So $152,826 into 4.15% divided by 12 is $528 an additional borrowing ability that you're going to receive the very next month. Think of it like a credit card. Don't think of it like interest in the bank. It's not money that's given to you, it's money that's available, additional money that's available to borrow from. And if you let that go year after year, you're gonna have a huge line of credit growth in the future. When I look at these tables and I run amortization schedules on free and clear properties or sizable amount of, of a line of credit. These will typically double in availability every 10 years or so. Now the growth rate, since it's attached to what interest rates are doing, you have a lot of upside on this growth right now. Right now rates are at an all-time low and you're still getting a growth rate of 4.1%. This LIBOR index, you know, when interest rates were just considered to be in a normal environment, that index could be 3.5%, 4%, which when you add the additional margin and the additional mortgage insurance premium, you could very well go into times where your credit line growth rate could be 7-8%, maybe even more. In this case, I'm just gonna show you two different illustrations in my simulator on what this thing can do in the future. So when you contact All Reverse Mortgage, we can run you all kinds of different simulators, like assuming you're only gonna borrow $1,000 I'm borrowing $1,000 a month from your line. What is my credit line gonna look like in 10 years from now? How much do you think would be available? Since everything is attached to interest rates and future rates are unknown, we can provide a lot of different illustrations, but really they're just that. We can't know for certain without knowing what rates are gonna do. But say in this case rates stay low, you set up a line of credit and rates are the same year after year, and if you're not taking any draws I'm gonna go out 10 years here. That line of credit, which was $152,000, has now gone up to $232,000. And that just keeps going and going, that compounds. And that just assumes rates where they are right now. If I start over and I say, okay, rates are gonna go up maybe a couple points What is my line of credit gonna do then? In that case, we have a line of credit of around $280,000. You started off with only $150,000 and you're now up to $280,000. At any time you can take all the cash from your credit line. It is considered to be tax-free because it's not income. Even if your home value goes down and you can borrow more from your line than home value, that's actually okay. You can pull— these are your funds that you can pull anytime 10 years from now, you could even convert that $280,000 into a guaranteed monthly payment for the rest of your life. Another benefit from the line of credit is all that flexibility. You know, you— if you want to take $1,000 one month and, or maybe just a few hundred the next month, or as often or as much as you'd like, you can certainly do that. There's never any charges for you to pull money against your credit line, and the funds are directly deposited into your bank account. Usually within 24 to 48 hours is a good rule of thumb. We do set up your checking account or whatever account you prefer while we're in the process of originating your reverse mortgage so that when we fund and your loan gets transferred to servicing, they already have your bank account set up and you already have a loan number. And when you start requesting funds from your line, it would just be directly deposited in your account.
