HELOC
HOME EQUITY LINE OF CREDIT OR HOME EQUITY LOAN
Often abbreviated as HELOCs, home equity lines of credit give homeowners the option of borrowing to pay for care on an as needed basis. A bank will approve the homeowner for a specific amount of money for a certain period of time. The homeowner can borrow however much they require whenever they require it. And the monthly payments are dependent on how much they have borrowed.
The disadvantages include the fact that the homeowner must continue to make monthly payments. This is not the case with reverse mortgages. If one fails to make their payments, the home can be foreclosed. HELOCs do not have the same level of consumer protection as do reverse mortgages. Finally, as monthly payments are required, the borrower’s credit score plays an important part in the approval process. With reverse mortgages, credit scores are considered significantly less important.
*NOTE: It is important to note here that while a Reverse Mortgage requires the owner to remain in the property among other requirements, HELOCs do not. Under very specific circumstances, it may be advantages to use a HELOC notwithstanding the ongoing and continuing monthly payments. If the owner is in need of or elects to enter into an Assisted Living Facility, and/or Nursing Home, provided the owner qualifies for a HELOC, they can use the money from the HELOC to pay for the facility and rent their home to pay the monthly HELOC payments as they become due.
The major advantages of a HELOC are:
- The fees are generally lower for a short-term loan than they would be for a reverse mortgage.
- There is no requirement that the homeowner remain living in their home.
This is, of course, a very important consideration for persons who may need to move to assisted living or nursing homes at some point in the future.
One must apply these advantages and disadvantages to their specific situation to determine if a home equity line of credit is a good source of funding to pay for elder care. Generally speaking:
- Single individuals and married couples in good health should probably avoid a HELOC as a means of paying for care as their need for care is undetermined at present.
- Individuals with immediate care needs or couples in which both spouses require care are candidates for HELOCs because there is no requirement that they remain living at home. Should it be necessary for them to move into residential care, they can do so without concern that their HELOC will become due. A line of credit also gives them the flexibility to accommodate sudden increases in their monthly expenses due to the added cost of residential care. The line of credit also gives the flexibility to return to living at home should one’s health allow for it or provide a source of funding for care while determining if the home should be sold.
- For couples in which only one spouse requires care, both HELOCs and reverse mortgages can be good options. One needs to consider the extent and duration of the care required. However, reverse mortgages are not available to couples in which one spouse is under 62 years of age, while this does not hold true for HELOCs.
You may call Heritage Home Care™ at 781-725-AMPM (2676) for more information and referrals to local mortgage brokers in your area.