What Is a HECM Reverse Mortgage?
First things first, what is a HECM mortgage? A HECM (home equity conversion mortgage) is a government-backed reverse mortgage that is managed by the FHA.
As with all reverse mortgages, with a HECM mortgage, borrowers don’t make regular payments to the lender. Instead, the lender makes payments to the borrower. The lender repays the borrower when they sell their house or leaves the property to their heirs to sell.
HECM Reverse Mortgage Amount and Uses
A HECM mortgage is primarily based on the equity in a home. However, other factors contribute to the loan amount, such as the borrower’s age and the current interest rates.
The money from a HECM reverse mortgage can be used for any purpose, including:
- paying down debt
- home repairs
- medical fees
- lifestyle improvements
Additionally, the borrower has control over how they receive money. They can decide on a line of credit, a lump sum of cash, or monthly payments.
Who Should Consider a HECM Reverse Mortgage?
Now to the meat of this article. Namely, who benefits from a HECM mortgage? We’ll start with the requirements for this loan because it sets the stage for who might benefit most from this loan product.
HECM Loan Requirements
To obtain a HECM loan, the age requirement is 62 years old and you must own your property. Additionally, you must attend a consumer information session with a HECM counselor. There are NO income or credit requirements for this loan type, but a lender must determine your ability to pay for property maintenance, insurance, and property taxes. Your ability to pay for these items will determine how much money you have access to from your loan.
What Can a HECM Mortgage Do for You?
For those older than 62 years old, a HECM is a valuable way to access cash while staying in your own home. A HECM loan requires that your primary residence is the home the loan originates in, so it’s critical that you plan to remain in your home for as long as you use this loan.
With a loan secured, you can use the proceeds to maintain the lifestyle you want. This all comes without needing to sell your property or make higher monthly mortgage payments. Additionally, homeowners with mortgage balances may be able to clear their mortgage payments with a HECM and free up some cash.
This Loan May Be Easier to Access
Since a HECM loan doesn’t require a certain credit score or income level, it may be an accessible option for homeowners who don’t qualify for other home equity loans.
An additional benefit of this type of loan is that there is a set interest rate regardless of whether people have good or bad credit.
Additional HECM Mortgage Requirements
Before jumping into a HECM reverse mortgage, keep in mind that you must continue to live at the house your loan originates in. If you think you will need to move into an assisted living facility in the near future, this loan probably isn’t worth doing. There are some fairly high mortgage insurance premiums you must pay to the government at the start of the loan. Thus, the longer you have the loan, the lower the overall cost of the loan will be.
Rules for Non-Borrowing Spouses
In the case you leave or die, a non-borrowing spouse can keep living in the home on the condition that they continue paying taxes, insurance, and home maintenance. Additionally, to be protected from eviction, the spouse must be listed on the loan documents and on the property title. Finally, the spouse must continue living in the home as their primary residence for the loan to remain active.
Impacts on Heirs
While a reverse mortgage can be a timely solution for accessing cash flow, it’s worth considering how heirs may be affected down the line. Essentially, a HECM reverse mortgage draws down the equity of the home and in doing so, fewer assets will be left to heirs. To keep the house, heirs must pay off the reverse mortgage, and if they sell the house, the proceeds will go to pay off the loan. Any additional money from selling the house will go to the heirs.
Discover If a HECM Loan Is Right for You
HECM reverse mortgages surely have their benefits. They allow you to pull equity from your home while remaining in it. Additionally, they don’t have income or credit requirements, making them a more accessible loan product for many individuals. However, before committing to any mortgage product, it’s always wise to consider your options. At Strategic Mortgage Solutions, we can help you do just that. To set up a loan consultation appointment, reach out to us today by calling us at 541-275-1148 or sending us a message.