How to Change From a Reverse Mortgage to a HELOC
- 1). Determine the reason for switching. Reverse mortgages pay you, while HELOCs require you to pay the bank. A change would enable you to borrow more money with greater frequency than a reverse mortgage, but you'll be obligated to make payments on a monthly basis. Before committing to a switch, speak with your reverse mortgage lender to see if they can increase your monthly stipend, instead.
- 2). Determine your eligibility for a HELOC. In order to qualify for a monthly repayment loan, you'll need to prove you can repay the loan. A new lender will verify all of your income documents to confirm you can repay the loan. Additionally, keep in mind that any money taken out from the reverse mortgage will show as a first lien mortgage--any new loan must take this into account when calculating a loan-to-value ratio (the total of loans on the house versus the property value).
- 3). Find a lender. Consider using the lender that financed the reverse mortgage because it will have the pertinent documents on file. Or speak with a local bank or community credit union for referrals. Smaller banks often offer excellent rates on HELOCs. However, these are normally offered to those with stellar credit. See the resources bar for a free copy of your credit report. A FICO score above 720 should have no trouble securing the best HELOC rates on the market--as long as income supports the new loan.
- 4). Do not make a decision until receiving the payoff figure on the reverse mortgage from the current lender. The reverse mortgage loan already taken out, all fees and interest, and any early-termination penalties, will be rolled into the new HELOC. The result could be a much larger loan than you expected--with much higher payments than expected.
- 5). Take advantage of the "cooling off" period if offered (a few days to look over the final paperwork before becoming fully obligated). Take this time to make the right decision is made and that the payments can be made in the long run.