What is a Reverse Mortgage?
A reverse mortgage or Home Equity Conversion Mortgage (HECM) is an FHA loan available to homeowners aged 62+ that requires no monthly mortgage payments. The HECM pays off any current mortgage they may have, freeing up the cash they had needed previously to make their monthly mortgage payment and allowing for more discretionary income. If the homeowner qualifies for more cash than the balance of their current mortgage or does not have a mortgage on their home, the funds can be paid to them as cash, a line of credit or monthly payments, it is their choice how to take their funds. The amount a person may qualify for is determined by their age, the value of the home and the current interest rates. The funds can be used for anything they may want or need, such as home improvements, unexpected medical costs, and in-home care. Because the loan does not require monthly mortgage payments, it allows the homeowner the flexibility to retain ownership of their home while they utilize the equity to fund their retirement. HECM reverse mortgages are the most common type of reverse mortgage. All HECM’s are Reverse Mortgages but not all Reverse Mortgages are HECM’s; some reverse mortgages are proprietary loans available through specific lenders and are not FHA loans. HECM reverse mortgages were created to give homeowners aged 62+ access to funds to stretch their retirement savings and provide additional financial security. To learn more about proprietary loans, click here. Ultimately, the goal of the reverse mortgage program is to allow seniors to maintain their homeownership and live a more quality life.
How Does a Reverse Mortgage Work?
A reverse mortgage allows homeowners aged 62+ to borrow money based on their age, their home’s value, and current interest rates. Older people qualify for a larger percentage of home equity than younger people do. Making monthly mortgage payments on what is borrowed is optional and some people do choose to pay down the loan balance, but monthly mortgage payments are never required.
This type of loan is called a reverse mortgage or HECM because instead of the borrower making monthly mortgage payments to their lender as they would with a traditional mortgage, the lender pays the borrower. Unlike a traditional home equity loan or second mortgage, a reverse mortgage HECM does not have to be repaid until the borrower no longer occupies the home as their primary residence or fails to meet other obligations of the loan. The borrower can choose to receive their money as a lump sum, line of credit, or monthly payments. Is a HECM right for you? Every situation is unique, click here to see our helpful infographic that may guide you to the optimal decision for your situation.
What Are the Types of Reverse Mortgages?
There are many different reverse mortgage types and programs, some with adjustable rates and some with fixed rates. It is important to research the Loan Officer you decide to work with to make sure they are knowledgeable about the many programs, experienced in your local area and have access to a variety of options for you to consider. We are a brokerage which allows us access to the various reverse mortgage programs- there isn’t a reverse mortgage that we can’t offer.
- The most common reverse mortgage is the Home Equity Conversion Mortgage (HECM), which is insured by the FHA. To learn more about HECM loans, watch this video on our website here.
- An alternative option is a proprietary reverse mortgage, which is not backed by the federal government and is not considered a HECM loan because of the proprietary nature. Learn more about our proprietary programs on our website here.
HECM vs. a Traditional Mortgage
With a traditional mortgage or home equity loan, the homeowner must have the income and credit to meet the qualifications to borrow a large amount of cash and are then obligated to make monthly mortgage payments back on it. With a reverse mortgage, there are minimal qualifications and no monthly mortgage payments to make. As a consumer protection, borrowers have to prove they can maintain their property taxes and homeowners insurance. Depending on how much cash you may qualify for, you may gain access to a reverse mortgage line of credit that can grow over time and cannot be frozen, giving you tax-free access to your equity whenever you may need it.
What Are the Benefits of a HECM Reverse Mortgage?
A HECM loan (reverse mortgage) allows homeowners aged 62+ to convert home equity into flexible, tax-free income to use however they want and:
- Continue to live in and own your home without making monthly mortgage payments.
- Receive your cash benefit as a tax-free lump sum, monthly payments to you, a line of credit or a combination of these, giving you the flexibility and control to adjust your payment options as needed.
- Repay the loan or make optional monthly mortgage payments at any time without penalty.
- HECM loans are not considered income, are not taxed, and will not affect Social Security or Medicare benefits. Consult your local program offices to determine how, or if, monthly HECM loan payments might affect your eligibility for other programs.
- There is no time limit to how long the loan stays active.
Would you like more cash in your pocket? Wondering how much you may qualify for? Call us today at (800) 806-1472 or fill out the form on the top right of this page for more information.