I have been sharing different ideas in my last couple of posts about the options for a senior if they want to borrower equity out of their home and whether or not they are a good or ideal solution to solve a financial problem or simply wanting extra funds to be available to them for any use.
I’m going to continue this discussion in this post and one more that will follow it in a few days.
In the last couple of days, I talked about the traditional HELOC, the one that every Bank offers to their customers and now let’s pick up where I left off.
The HELOC will allow interest only payments for the first 5 years, but then will adjust to a much larger payment. Plus, the lender at any time can “freeze” the account and the funds in it will not be available to the borrower.
Too often the borrower is unaware that the loan will be “reset” in the future and if they no longer have the same income as they did when they initiated the transaction, they may not be able to afford the new and higher payment.
Sometimes a senior will use one of these loans for additional income to pay on going expenses, but obviously they will eventually run out of money in the HELOC and of course, will have mortgage payments for the term of the loan.
This can be disastrous for a senior and possibly result in them losing their home through foreclosure if they are unable to afford the payments.
The next possible choice, would be to do a traditional fixed rate 2nd Trust Deed. At least you will know what the payment will be each month, but again the borrower is obligating themselves to a mortgage payment for 15 years and they may not have the income in the future to continue comfortably making the payment each month.
And if they are a senior and or hoping and or planning to retire within a few years, will they be able to afford this obligation every, single month?
So would be the next choice?