RECAP: When you enter into a reverse mortgage you are effectively borrowing against the equity that you built up in your home while you were making mortgage payments.
A reverse mortgage is taking money out of the home that you own all or a part of and constitutes a new loan on your home in which the lender under the reverse mortgage now has a lien on.
Reverse mortgages can be structured in many different ways. The most common way is in the form of lump sum payments that are often used to invest in retirement assets or on which you slowly borrow on to meet your expenses. Another alternative is a line of credit agreement as part of a reverse mortgage which many people find useful.
An reverse mortgage is a revolving loan in which a borrower can borrow amounts as they need it and can repay amounts when they have excess cash available.
Thus, a borrower with a line of credit reverse mortgage is able to only use the amount of money from a reverse mortgage that they need for the time being and can repay the reverse mortgage when it is not needed. The added flexibility of an line of credit reverse mortgage is what makes this loan attractive. While lenders will often place a cap on the amount of the line of credit, this cap can sometimes be as high as the equity that is built into the home.
While many borrowers may not qualify for a line of credit on their own, the added security that a lender has by having a reverse mortgage on their home can provide them with the protection they need to lend at lower rates and therefore protect themselves from loss while providing the money that a borrower needs to meet their own financial obligations.