HECM Line of Credit Gains in Popularity Among Reverse Mortgage Borrowers
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There is no question the most popular payment choice for HECM borrowers remains the HECM line of credit. Recent data from HUD shows that 94% of the 319,035 HECM loans originated from January 1990 through June 30, 2007 have either been straight lines of credit (81%) or credit lines combined with another payment form (13%).
The HECM line of credit option has increased in popularity along with the boom in reverse mortgages over the last year. At the end of March 2006 (when total number of HECMs stood at 188,000) the straight line of credit was the payment option selected by 78% of HECM borrowers. 92% of borrowers at that time chose either a straight line of credit or a line of credit combined with the tenure or term payment options.
The growing popularity of the HECM line of credit comes despite studies that have indicated the tenure payment option is likely the optimal form of payment from the standpoint of maximizing financial benefits.
The “tenure” payment option provides a monthly stipend for as long as the borrower remains in the home. This can mean a guaranteed monthly payment stream for life if the borrower remains in the home until death. Yet, the tenure option is the choice of only 4% of HECM borrowers (down from a 5% share in March 2006). We’ve discussed in an earlier article some of the reasons people why people tend to shy away from lifetime payment structures.
The least popular type of payment remains the straight term option which guarantees a monthly equal payments for a specified period of time (e.g. 10 years). The term payment option has been the choice of only about 2% of borrowers over the course of the HECM program, through June 30, 2007. This is down from 3% at the end of March 2006.
Article Series - tenure_option
- Reverse Mortgage Payment Options - Are You Prepared to Self-Insure Life Expectancy?
- Study Shows HECM Lifetime Tenure Payment Option is Best Choice
- Reverse Annuity Mortgage Can Be a Sensible Strategy
- HECM Line of Credit Gains in Popularity Among Reverse Mortgage Borrowers
- Reasons Why People Don’t Choose Lifetime Payments
- ‘Guaranteed Income Gap’ Study Has Implications for Reverse Mortgage Borrowers
- More From Fidelity: Reasons Why Retirees Avoid Guaranteed Income Options
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