What is a HECM reverse mortgage loan?
Home Equity Conversion Mortgages (HECMs), also known as reverse mortgage loans, were created over 25 years ago to help Americans age 62 and older convert a portion of their home equity into tax-free money from the loan.† HECM reverse mortgages are insured by the Federal Housing Administration (FHA) and allow seniors to age in place and achieve retirement security.
How does it work?
A reverse mortgage loan allows you to turn some of the equity in your home into cash to improve your lifestyle in whatever way you choose. You will continue to live in your home, retain ownership and will not be required to make any monthly mortgage payments during the loan period. Instead of repaying the loan monthly, the loan balance is repaid when all borrowers have left the home. You will be required to pay for property taxes, home insurance and home maintenance. The loan balance also becomes due upon the occurrence of other events including
non-compliance with the loan terms.
How can you qualify?
The borrower on title must be 62 years or older
The home must be the borrower’s primary residence
The borrower must own the home
(The borrower must meet the financial requirements of the HECM loan)
What are Reverse Mortgage Options?
The amount you receive is based on these factors:
Age: The older the borrower(s), the more funds may be available
Home Value: The higher the home value, the more funds may be available
Interest Rates: The lower the interest rate, the more funds may be available
You’ll have flexibility to choose one or more of these loan disbursement options:
Lump Sum Payout: Pay off large expenses or other debts
Monthly Installments: Regular cash installments in the amount you need for a set period of time or for the life of the loan
HECM Growing Line of Credit: Access the available funds when you need them
What are Common uses of a reverse mortgage?
1. Must pay off an existing mortgage and eliminate monthly mortgage payment
2. Make retirement savings last longer
3. Use HECM reverse mortgage growing line of credit to preserve investment accounts during market downturns or build a safety net for unplanned emergencies, home repairs and healthcare expenses
4. Supplement your retirement with monthly payments
5. Use a HECM for Purchase loan to buy a home that better fits your needs
6. Support aging in place expenses, like care giving and home modifications
What are recent HECM program changes?
Recent HECM program guidelines were put in place by the United States Department of Housing and Urban Development (HUD) to protect borrowers and further strengthen the HECM reverse mortgage mortgage loan program.
Financial Assessment: Effective April 27, 2015, HUD will require a more thorough evaluation of a borrower’s ability to meet the obligations of his/her HECM reverse mortgage loan.
Non-borrowing Spouse: Effective August 4, 2014 new loan amounts are available to borrowers with a non-borrowing spouse under the age of 62. Current rules also allow the eligible spouses of borrowers who pass away to stay in the home without foreclosure. (The surviving eligible spouse must continue to comply with all loan terms‡).
More Affordable: Upfront mortgage insurance premiums (MIPs) have been lowered by the FHA. As long as you don’t take more than 60 percent of your proceeds in the first year, you will be charged an upfront MIP of 0.5 percent of the appraised value of the home. If you cross the 60 percent threshold, the upfront MIP will be 2.5 percent on a $200,000 home, 2.5% is $5,000 vs. $1,000 for 0.5%).
What are the consumer safeguards?
A number of consumer safeguards have been established to protect reverse mortgage borrowers. These protections ensure lenders like us are doing their jobs right, and that you and your family have a thorough understanding of how a reverse mortgage works. The following consumer safeguards were instituted for your benefit:
No Pre-payment Penalty: You can choose to repay the loan at any time without
incurring any additional costs.
Non-recourse Loan: HECMs are considered nonrecourse loans in which the borrower can never owe more than what the house is worth at the time the loan is paid back.
Counseling: All reverse mortgage applicants undergo independent, third party counseling. This ensures that borrowers understand the financial implications associated with their reverse mortgage, what their obligations are and what other alternatives may be available to them. We encourage and support third-party counseling so that you feel completely comfortable with the process and understand your options.
Safer: HUD established principal limits on the amount of money you can borrow during the first year of your loan. This may ensure home equity proceeds last
HUD Fee Limitations: HECM origination fees are regulated by HUD. Other HECM reverse mortgage costs may vary among creditors and loan types.
Greater Retirement Security: Financial advisors are including the reverse mortgage growing line of credit as part of their clients’ long-term retirement planning strategies, helping stretch other investments even longer into retirement