Reverse mortgages have become a popular means for senior homeowners to tap their home equity for retirement income. The downside is that origination and insurance fees are very high on this type of loan.

Some seniors try to get around this by using a regular HELOC in lieu of a reverse mortgage. We’ve written previously about this and why it isn’t always a sound strategy. The main hurdle, simply, is that HELOCs require regular monthly payments whereas reverse mortgages are designed to require no repayments until the homeowner/borrower dies or sells the home.

Seniors drawing on a HELOC to supplement their retirement income can quickly find the required monthly payments - even interest only payments - too much to handle. Worse, over time the line of credit will be tapped out and they may face the prospect of having to make payments with no further credit line to draw on.

A recent article in the Wall Street Journal offers a neat way for children to help their senior parents circumvent this problem: Have the children commit to making the minimum line of credit payments if it reaches this point.

The parents can enter the HELOC transaction with more confidnce knowing that they have their children for backup. At the same time, the children are assured of recouping any investment they make when the home is sold.

Of course, such intra-family transactions are not without their own risks. For everyone’s sake and understanding, terms should be spelled out in writing and signed-on by everyone involved.

In our next post we’ll look at one way that a HELOC can also be used as a cost-effective bridge to a future reverse mortgage loan.