Tips on Using a HELOC as a Reverse Mortgage Substitute

Here are four key tips if you plan to use a HELOC as a reverse mortgage substitute:

  1. Never borrow too much from a HELOC.
    • You want to ensure you can refinance the HELOC into a reverse mortgage if you ever need to, even if home prices fall.
    • This could be vital if the lender calls in your HELOC or you hit your HELOC credit limit and run low on cash.
    • Seniors Equity sets your HELOC loan amount at the right amount.
      • This ensures you have leftover equity to later refinance into a reverse mortgage (if necessary).
  2. Not all HELOCs are created equal.
    • The Seniors HELOC allows for interest capitalization.
      • That means the monthly interest due on the HELOC can be paid by the HELOC itself (very few lenders support this)
  3. In some cases, a lower cost Seniors Mortgage is even more cost-effective than a HELOC.
  4. HELOCs aren’t without risk.
    • If you don’t make the minimum interest payment, you could be foreclosed on.
      • The Seniors HELOC has automated payments to help avoid this.
    • If you never make principal payments and rack up a big balance, there is always a chance a lender could reduce your credit limit.
      • This is much less of a problem with the lender we use, for various reasons.
    • If you got the HELOC with a spouse, and the spouse has passed away, the lender may find out and ask to confirm you can afford the payments on your own. If you can’t, the lender may call in the HELOC.

Informed Canadians find the interest savings of a HELOC worth the tradeoffs when compared to a reverse mortgage. Read more about this from our founder, Robert McLister, in the Globe and Mail.