Hi Rixter,
I've been meaning to ask you. What is the difference between LOE and a reverse mortgage? I understand what they both are but aren't they effectively the same thing?
Im sure there are as many variations as there are lenders so if you are looking for specific details, best run your situation past one of the mortgage brokers who frequent this forum.
In the mean time here's a quick cut n paste from the Your Mortgage Website.
Line of credit/equity line
A line of credit is similar to having a big chequebook, however with interest accruing on the balance. A line of credit, or equity line as they're sometimes called, is an approved limit of borrowings that you can use a piece-at-a-time, or all at once.
Lets say you have a line of credit of $200,000. This means that you can use up to a total of $200,000 all at once or perhaps invest $50,000 in the share market. If you did the latter, you would only pay interest on $50,000, as the remaining $150,000 would be untouched. If you were to use a further $70,000 for house renovations, for example, then you would be paying interest calculated on $120,000 ($50,000 for shares + $70,000 for investment), leaving $80,000 to use at a later date if required.
A line of credit loan facility can be a great way to access the equity in your home and can be used for things like home renovations, investments or other personal purchases. It acts as a loan, but, unlike a loan, a line of credit doesn't require you to pay interest on the credit you don't use.
Reverse mortgages
The reverse mortgage loan was introduced to the market to cater for retirees wanting to take advantage of the equity they have in their home and use it to supplement their retirement income. Basically, retirees can use this type of loan to borrow money against the equity they have in their property, and have it paid to them in either a lump sum or in instalments, depending on the lending institution involved.
Generally all repayments, fees and charges will be added to the loan balance each month so that the borrower/s don't have to make any payments whatsoever. The lender recoups the repayments and fees when the borrower/s pass away, the property is sold or the borrower/s no longer live in the property. Having said this, generally the borrower/s may make payments at any stage if they wish to reduce the loan balance.
There will normally be a minimum amount of around $10,000 and quite often a maximum allowed that will be expressed as a dollar figure, or as a percentage of the value of the property. To qualify, the borrowers will generally need to be over 65 years of age. Some lenders will wear the risk if the end debt amount is more than the property is worth, however this will vary from lender to lender.
These loans are obviously great for older people who may be doing it a little tough financially after retirement, or who may need a large amount of money in a relatively short time for a dream project such as a caravan trip to the Outback or a luxury cruise.
One thing to be wary of is the all care, no responsibility method of repayment. Basically, the debt is left to the beneficiaries of the borrower/s to pay, which might come as a nasty surprise to beneficiaries expecting a clean inheritance.
Hodge, I hope this helped.