Skeptical Columnist Recommends HECM Line of Credit Over HELOC

In a nationally syndicated housing advice column, writer Benny L. Kass cautiously recommends reverse mortgage lines of credit for certain homebuyers, despite also tagging the loans with the dreaded “last resort” label.

Kass responded to a question from a couple of 65-year-old homeowners who need “money to pay for some personal matters,” and were curious about whether to take out Home Equity Conversion Mortgage credit line or a traditional “forward” home equity line of credit, or HELOC.

After first recommending that the couple consider a straight refinance of their property in order to lower monthly payments and boost their cash reserves, Kass — a Washington, D.C. lawyer whose column appears in the Chicago Tribune and Washington Post, among other national papers — breaks down the difference between reverse mortgages and HELOCs, coming down implicitly but firmly on the side of the HECM.

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Kass correctly notes that unlike a HELOC, reverse mortgage lines of credit have no defined “draw period,” and are thus available for tapping throughout the full life of the loan. He also points to the reverse mortgage Financial Assessment and counseling process as positive safeguards for prospective borrowers.

“You have to participate in pre-loan counseling to get the reverse mortgage; there is no such requirement for a HELOC,” Kass writes. “That means you take your own risks, without the help of experts advising you regarding your financial situation.”

Kass calls out a variety of other advantages to the HECM product, in his opinion, including lower interest rate caps — five percent to 10% for a HECM versus 10% to 18% for a HELOC — and the growth of the HECM credit line over time. Critically, though, he admits he doesn’t quite fully grasp the latter concept.

“As soon as I develop a better understanding of this, I will explain it in a future column,” he writes, adding parenthetically: “For now, search ‘credit line growth’ on the internet.”

Lack of growth comprehension aside, Kass’s piece joins five other key HECM-versus HELOC stories that RMD compiled last week, and it illustrates that a little understanding about the product can go a long way for skeptics: Despite ending the piece with a standard warning about how “reverse mortgages should be considered a last resort,” Kass spent the majority of his answer extolling the virtues of the product and listing all the potential downsides of a HELOC for certain older borrowers.

Read the whole piece at the Chicago Tribune here.

Written by Alex Spanko

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  • I find it hard to believe the financial author does not understand the line of credit option. Best deal since sliced bread. The unused line grows at around 6% now matter what happens to the value of the home. “Loan of last resort”. IMHO it might be the loan of “first” resort. I’ve originated HECM for some millionaires who understand how to think. It is not that they NEED money, it is that they WANT money.

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