The Home Equity Conversion Mortgage (HECM) is the name for the FHA-insured and government-regulated reverse mortgage program, which enables you to withdraw some of the equity in your home with no requirement of repayment for as long as you live in the home. The HECM is a safe plan that can give older Americans greater financial security. Many retirees use it to supplement Social Security, meet unexpected medical expenses, make home improvements and more. You can receive additional free information about reverse mortgages in general by contacting the National Council on Aging at (800) 510-0301 or downloading their free booklet, “Use Your Home to Stay at Home,” a guide for older homeowners who need help now. It is smart to know more about reverse mortgages, and decide if one is right for you!
A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you. However, unlike a traditional home equity loan or second mortgage, HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage, such as pay for property taxes and insurance. You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.
To be eligible for a reverse mortgage, you must be least 62 years old and own your home. You must have equity in the house to pay off any outstanding balances, and you must live in the home. You are also required to receive consumer information free or at very low cost from a HECM counselor
prior to obtaining the loan. You can find a HECM Counselor online or by phoning (800) 569-4287
Yes. You may apply for a HECM regardless of whether or not you purchased your home with an FHA-insured mortgage.
To be eligible for the FHA HECM, your home must be a single family home or a 2-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.
With a second mortgage, or a traditional home equity line of credit, borrowers must have adequate income to qualify for the loan, and they must make monthly payments on the principal and interest. A reverse mortgage is different, because it pays you – there are no monthly principal and interest payments. With a reverse mortgage, you are only required to pay real estate taxes, utilities, and hazard and flood insurance premiums.
When the home is sold or no longer used as a primary residence, the balance of the HECM loan must be repaid. All proceeds beyond the amount owed belong to your estate. This means any remaining equity can be transferred to heirs according to will or trust. The government insurance guarantees that no debt is passed along to the estate or children, church, or charity.
The amount you may borrow will depend on:
- Age of the youngest borrower
- Current interest rate
- Lesser of appraised value or the HECM FHA mortgage limit of $625,500 or the sales price; and
- Initial Mortgage Insurance Premium–your choices are HECM Standard or HECM SAVER
You can borrow more with the HECM Standard option. Generally, the more valuable your home is, the older you are, and the lower the interest rate, the more you can borrow. If there are more than one borrower, the age of the youngest borrower is used to determine the amount you can borrow. For an estimate of HECM cash benefits Call Us! You may also select the online calculator from the HECM Home Page. Many online reverse mortgage calculators can provide you with an estimate of the amount of funds you can borrow. We highly recommend getting a personalized quote for accurate numbers.
Yes. Counseling is required with an independent third party HUD-approved counselor to protect borrowers from receiving incorrect information about reverse mortgages. The lender must be in receipt of the counseling certificate before they can close the loan. To locate a reverse mortgage counselor near you, contact us at (619) 294-6000.
You can select from five payment plans:
- Tenure – equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
- Term – equal monthly payments for a fixed period of months selected.
- Line of Credit – unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted.
- Modified Tenure – combination of line of credit and scheduled monthly payments for as long as you remain in the home.
- Modified Term – combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.
The fees and cost of a reverse mortgage are based on a number of items. For example, an origination fee is paid to the broker/lender, a Mortgage Insurance Premium (MIP) is paid to HUD on the Home Equity Conversion Mortgage (HECM), an appraisal fee, a flood certification fee, a doc prep fee, title and settlement fees, and other standard closing costs. Monthly servicing fees could apply. Call Us
today to see if you qualify for a lender credit that could pay some or all of your closing costs.
The upfront Mortgage Insurance Premiums (MIP) are either 2.5% or .5% depending on how much of the Principal Limit (amount you can borrow) you use in the first year. If your total mandatory obligation payoffs (existing mortgage payoff, tax liens, closing costs, upfront mortgage insurance premium) exceed 60% of the Principal Limit your upfront MIP is calculated at 2.5% of your homes appraised value up to the national lending limit of $625,500. If your total mandatory obligations and cash taken in the first year are 60% or less of the Principal Limit your upfront MIP charge is .5% of the homes appraised value or national lending limit (whichever is less). We are experts at navigating the rules and can help you choose the Reverse Mortgage that fits you best.
The equity in your home is typically considered as loan proceeds and not additional income. Typically, the funds from a reverse mortgage are considered tax free. (Borrowers should seek professional tax advice regarding reverse mortgage proceeds.)
A reverse mortgage was created so borrowers don’t have to pay most fees during the course of the loan. Typical upfront costs are for the appraisal and HUD-approved reverse mortgage counseling (some agencies waive counseling fees at their discretion). However, there may be a monthly servicing fee associated with reverse mortgages. For more information on the service set-aside, please talk to your loan originator. Call Us
today and ask why Senior American Funding never charges monthly servicing fees.
By law, you have three calendar days after the closing date to change your mind and cancel the loan. This is called a three day right of rescission. The process of canceling the loan should be explained at loan closing. Feel free to ask us for instructions on this process. We will give you the names of the appropriate people, phone numbers, fax numbers, addresses, or written instructions if you would like to go through with a cancelation. In most cases, the right of rescission will not be applicable to HECM for purchase.