FHA Insured Reverse Mortgage
Also known as the Home Equity Conversion Mortgage "HECM"
What is a HECM? (FHA Insured Reverse Mortgage)
A HECM is a special type of mortgage that enables you, as an older homeowner, to tap the equity you have in your home while giving you the maximum amount of flexibility to address your particular financial needs - - whether it be a lump sum of cash to pay an unexpected hospital bill or regular monthly income to supplement your cash flow. Unlike traditional home equity loans, no repayment of the HECM loan is required until you no longer occupy the home as your principal residence.
With a HECM, you borrow against the value of your home, and receive loan proceeds according to the income plan that you select. A description of these plans will follow. As a borrower, you may change payment plans as many times as you wish.
When you sell your home or vacate it for other reasons, the accrued interest plus what the lender has paid you or on your behalf through the years is due and payable, usually from the proceeds from the sale of your home. Any proceeds in excess of the amount owed the lender belong to you or to your estate.
How does a HECM differ from a home equity loan?
While both HECMs and home equity loans enable you to turn the equity in your home into spendable dollars, there are important differences between the two types of mortgages. With a home equity loan, you must make regular monthly payments to repay the loan. These payments begin as soon as the loan is originated. To qualify for such a loan, you must earn a monthly income great enough to make those payments. If you fail to make the monthly payments, the mortgage lender can foreclose on you, and you could be forced to sell your home.
With a HECM, you do not repay the loan as long as the home remains your principal residence,and your income is not considered when qualifying you for the loan.
Who is eligible for a HECM?
You, and any co-borrowers, must be at least age 62 and either own your home free and clear or have a very low outstanding mortgage balance. Counseling from a HUD-approved counseling agency is also required. Family members are strongly encouraged to attend these counseling sessions.
Must I pay off any loans or liens that are against the property?
All loans or liens must be paid off to get the HECM loan, but they can be paid off with HECM dollars.
What are the minimum and maximum amounts that I can borrow?
The maximum amount you can borrow is based on a HUD formula that factors in the age of the youngest borrower, the expected interest rate, and the 'plan-adjusted value' for the particular county. The plan adjusted value is the lesser of the appraised value of your home or the plan-adjusted value for a one-family residence that can be insured by FHA in your area. There is no minimum borrowing amount. There is no upward limit on the value of the property.
What types of income plans are available with the HECM loan?
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