The ability to build home equity is one of the best parts of homeownership. That said, accessing one’s home equity can be a challenge, especially if you don’t want to sell your home.
Historically, a cash-out refinance, where your current mortgage is replaced with a larger balance and a new rate, has been a popular solution. But as of the time of this writing, the average 30 year mortgage rate is nearly 7%, and rates have been high in general for several years running. So if you were fortunate enough to buy your home with a low interest rate, a cash-out refinance may have little appeal.
The next option that many would consider is a home equity line of credit (HELOC). A HELOC is a second mortgage that uses your home as collateral, enabling you to borrow against the equity of your home as you need it–while keeping your existing mortgage in place.
While that can be a great option for people with unknown or ongoing expenses to fund, it has a number of moving parts and distinct risks. We’ll cover those in greater detail at the end of the article, but the biggest drawback is the variable interest rate and the required monthly payments that kick in and continue until the balance is fully repaid.
But what if you wanted to access your home equity without affecting your current mortgage interest rate and your current payment obligations, and not only avoid variable rates, but avoid having to make monthly payments on the new loan altogether? That is where a new option called HomeSafe Second comes into play.
If you’ve never heard of it, that’s because it launched in 2018 and was relaunched in 2023 with a lower rate and expanded availability.
How Does a HomeSafe Second Loan Work?
A HomeSafe Second loan acts as a second lien and typically has an age restriction of 55 (in select states the minimum age may be higher). It provides a one-time, lump sum payment with a fixed interest rate.
What makes HomeSafe Second unique is that it does not require new monthly payments going forward.
Instead, you simply need to keep up with the property charges you already have to pay, such as the first mortgage, taxes, insurance and home maintenance. The loan becomes due only when you sell your home, permanently move out, or the last borrower passes away.
Who Is HomeSafe Second For?
As the age restrictions imply, it’s for older homeowners who want to access a portion of their home equity and continue to pay off their low interest mortgage—without decreasing their monthly cash flow going forward.
Most people who are 55 and up want to avoid taking on new monthly financial obligations, which makes perfect sense. It’s the time in life where many want to save as much money as possible for retirement—and parents in this age group are often dealing with their kids’ college education as well.
Importantly, HomeSafe Second is currently only available in the following states: CA, CO, CT, FL, MT, NV, OR, SC, TX, UT, WA.
So What’s the Catch with HomeSafe Second?
The beauty is that there is no catch. HomeSafe Second is a straightforward reverse mortgage loan product invented by Finance of America and offered by approved lenders like Fairway.
But that is not to say HomeSafe Second is free money; as stated earlier, the amount borrowed accrues interest over time. And like all loans, you need to honor the terms and conditions or risk default. For example, failing to pay one’s property taxes in a timely manner could cause a HomeSafe Second loan to become due and payable.
When the last borrower permanently moves out or passes away, the loan becomes due and payable and is typically satisfied via the sale of the home. If the sale price isn’t enough to cover the balance of the loan, neither the borrowers nor their heirs are liable to pay the difference. Conversely, if there’s a profit left over, the borrower or their heirs get to keep it.
Lastly, if heirs want to keep the home, they can do so by paying off or refinancing the remaining liens.
Here’s a Hypothetical HomeSafe Second Scenario:
The beauty is that there is no catch. HomeSafe Second is a straightforward reverse mortgage loan product invented by Finance of America and offered by approved lenders like Fairway.
But that is not to say HomeSafe Second is free money; as stated earlier, the amount borrowed accrues interest over time. And like all loans, you need to honor the terms and conditions or risk default. For example, failing to pay one’s property taxes in a timely manner could cause a HomeSafe Second loan to become due and payable.
When the last borrower permanently moves out or passes away, the loan becomes due and payable and is typically satisfied via the sale of the home. If the sale price isn’t enough to cover the balance of the loan, neither the borrowers nor their heirs are liable to pay the difference. Conversely, if there’s a profit left over, the borrower or their heirs get to keep it.
Lastly, if heirs want to keep the home, they can do so by paying off or refinancing the remaining liens.
How Does This Compare to a HELOC?
For starters, a HELOC is a line of credit, not a lump sum payment. So you would have the option of only spending a portion of that credit line, leaving you with a smaller loan balance to pay off than if you withdrew the full amount.
The critical difference for most borrowers is how the loan payment works. HELOCs have a draw period where borrowers can access their funds. This period typically lasts for 10 years and requires monthly payments on the interest alone. This is followed by a repayment period, which typically lasts 10 to 20 years, and requires monthly payments on both the principal and interest.
Lastly and perhaps most importantly, HELOCs have variable interest rates. As of the time of this writing, rates can range from 8.06% to 18% APR.
(Note: Requirements, payment, and other terms may vary between lenders.)
Who Are HELOCs For?
First, there’s no age restriction for HELOCs, so technically they could be for any homeowner with qualifying credit and loan-to-value ratio (LTV).
HELOCs can be a great option for people who know they need extra cash for something important, but are unsure of how much, and want to avoid borrowing more than the necessary amount. Say for example that you had a home renovation project with a number of unknown variables that could affect the final cost. Your HELOC could provide the funding as you go, enabling you to borrow the minimum amount, and thus reduce the amount you’d have to pay the lender due to interest.
That said, HELOCs are typically not favored by people in the qualifying age range of HomeSafe Second. If a 55 year old took out a HELOC, their repayment period–—requiring full principal and interest payments—would likely kick in at age 65. Considering the variable interest rates, this could cause serious cash flow issues when people typically aim to retire, which could potentially continue for the remainder of their lives.
Retirement-Friendly Home Equity: How HomeSafe Second Shines
With its unique combination of a fixed interest rate, one-time lump sum payment, and no new required monthly payments, it provides financial flexibility without impacting current low-rate mortgages or adding to monthly expenses.
While HELOCs may work better for those needing variable amounts of funding over time, HomeSafe Second shines for homeowners looking to maintain their cash flow in their later years while still accessing the wealth they’ve built in their homes. As with any decision regarding home equity, it pays to consult a professional as you do your own research. Our loan officers are here to answer any questions you may have and can help you find the right solution for your unique circumstances.
Final Thoughts
A reverse mortgage isn’t for everyone, but for many, it’s a powerful home loan—offering flexibility, security, and peace of mind in retirement. As with any financial decision, it’s important to understand the details, evaluate personal circumstances, and consult a trusted advisor(s) before making a choice.
For older-adult homeowners seeking a cash-flow friendly way to leverage home equity, a HECM may be worth a closer look.
Let’s Start a Conversation!
If you’d like to learn more about HomeSafe Second loans and how one may help with your unique needs, those of a loved one or someone you advise, connect with me today.
*This advertisement should not be construed as financial advice from Fairway. Please consult a financial/tax advisor.
The HomeSafe reverse mortgage is a proprietary product of Finance of America Reverse LLC and is not affiliated with the Home Equity Conversion Mortgage (HECM) program.
