Home equity conversion mortgages explained
A home equity conversion mortgage, or HECM, is a type of reverse mortgage insured by the Federal Housing Administration (FHA) that allows homeowners over 62 to access their home's equity.
With a HECM, the roles of borrower and lender are reversed, so as a borrower, you will receiver payments from a lender. The amount you can borrow is determined by the equity you have built up in your home and after an appraisal. As long as you take are of the home, you don't need to worry about making monthly payments.
Are you ready to start the HECM process? Talk with a trusted professional today and see what accessing your home's equity could look like.
How does a HECM work?
A HECM helps seniors fund their retirement without the need to sell or move out of their home. Just like a traditional mortgage or home equity loan, you will hold onto ownership and keep the title in your name. Looking at the equity built up in your home, lenders could offer several options for you to access HECM funds.
Depending on your lender and needs you could receive your HECM in a lump sum, in monthly payments for as long as you live on the home, or as a line of credit you can draw on as needed. Some lenders could even give you a combination of all three options.
If you meet the requirements and still live in the home, you don't need to worry about monthly payments to repay your HECM.
Home Equity Conversion Mortgage Requirements
The requirements lenders will at before you can start accessing your home's equity through a HECM are as follows:
- Borrowers must be 62 or older
- You own at least 60% of your home's equity
- The property must be your primary residence
HECM requirements may vary slightly depending on the lender you choose.
HECM Repayment
You don't have to worry about repaying your HECM as you access your funds. Monthly mortgage payments with a HECM are optional. However, you will need to stay current on your property taxes and home insurance, as well as keep your home in good condition.
Lenders will be repaid if the property is sold or when the last borrower passes away. Any heirs you have will maintain control of the property and have several courses of action upon inheriting the home.
If the plan is to sell the home, your heir can allow the lender to sell or choose to sell the home themselves. They can also repay the loan with sales funds and keep any remaining balance. If they want to keep the property, your heirs can pay the HECM loan balance and interest.
Heirs who inherited the property will not owe a lender more than the home's appraised value, even if the loan balance is higher than the home's value.
Benefits of a HECM
There are many benefits to accessing your home's value as you grow older. A few reasons that make HECMs attractive to seniors are:
- The lack of monthly mortgage payments, even if interest rates rise.
- Keeping their home as they receive funds.
- The ability to use funds as they see fit.
- Lines of credit stay the same, even if the home's market value drops.
- Saving the money they would have spent on a conventional mortgage.
Considerations
There are a few aspects to keep in mind when consider whether or not a HECM is right for you. The equity in your home will decrease as you start accessing your funds. While you don't have to make monthly mortgage payments, you do still need to pay for your home insurance and property taxes. Your originator fees and interest rates might also end up being slightly higher than traditional mortgages.
When should I get a HECM?
The right time to get a HECM depends on you. If you are a senior homeowner looking for extra cash for retirement, you may want to consider accessing your home's equity with a HECM. Similar to other loans, you can ser you HECM funds as you see fit. Many seniors choose to use the money they receive to enhance their lives in retirement.
To see how much equity you have in your home and to learn how to start accessing it, connect with a HECM expert today and find out in as little as five minutes.
Disclaimer:
This is not a commitment to lend. The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the borrower does not meet these loan obligations, then the loan will need to be repaid. Otherwise, the loan must be repaid when the last borrower passes away or sells the home. Prices, guidelines and minimum requirements are subject to change without notice. Some products may not be available in all states. Subject to review of credit and/or collateral; not all applicants will qualify for financing. It is important to make an informed decision when selecting and using a loan product; make sure to compare loan types when making a financing decision. This material has not been reviewed, approved or issued by HUD, FHA or any government agency. Rate, Inc. is not affiliated with or acting on behalf of or at the direction of HUD, FHA or any other government agency. To find a Reverse Mortgage counselor near you, search the HECM Counselor Roster at https://entp.hud.gov/idapp/html/hecm_ageny_look.cf
