This is a special feature that many reverse mortgage lenders offer where you can effectively quarantine a portion of your equity for children or beneficiaries. By borrowing less than you are eligible for, you can ensure that your heirs will receive a pre-determined amount of the equity regardless of what happens to the loan balance or property prices in future.
Eg; Let’s say you are 70 years old and have a house worth $300,000. You would be eligible for a maximum of $75,000. If you chose a Protected Equity Option of 20%, you would only be able to borrow a maximum of $60,000, however you would ensure that your beneficiaries received 20% of the future sale price of your home, regardless of the loan balance at that time.
Although this feature is currently not that popular amongst borrowers, it’s a handy option. Borrowers in remote and regional areas, where house prices may not grow as strongly as those in the city, may be wise to consider this option when establishing a reverse mortgage.