How to Reduce the Line of Credit in Reverse Mortgages

One of the benefits of a reverse mortgage is the lack of monthly payments.

A reverse mortgage taken out as a line of credit has its advantages and disadvantages. A line of credit allows the borrower to use funds as needed and incur interest only on the amount of the credit line used. A line of credit also has a variable interest rate and interest costs on the loan could increase with inflation; this is in addition to the fees paid up front to acquire the loan. The unused portion of the line of credit also grows over time by the mortgage's interest rate. To reduce the line of credit and the amount owed on the reverse mortgage, you must make payments on the debt owed.

Instructions

1. Contact a financial adviser or your reverse mortgage lender about payment options. Explain to them what your financial goal is and ask if she can assist you in providing payment options to reduce the line of credit on the reverse mortgage.

2. Create a payment plan. With a payment plan, you can regain additional home equity by reducing the balance owed on the mortgage line of credit or pay back the full mortgage amount. Determine the periodic payment amounts you will need to make and the length of time it will take to reach your financial goal. Use the information from your financial adviser, if necessary.

3. Begin making payments on the line of credit. Make periodic payments according to the payment plan you created. Treat the payment schedule as a conventional mortgage payment schedule where payments are made on a consistent, regular basis. One of the positive features on this arrangement is the lack of negative consequences if you miss a payment, since reverse mortgages do not require loan payments while the borrower is alive and living in the home subject to the mortgage.

References

• Best Mortgage; Should You Pay Off A Reverse Mortgage?; Peter G. Miller; Jan. 19, 2009
• Reverse Mortgage Daily; Borrowers Paying Down Reverse Mortgages, A New Trend?; Neil Morse; Jan. 3, 2011
• All Reverse Mortgage Company; Reverse Mortgages -- The Line of Credit That Grows; Michael Branson; May 12, 2009