HECM Reverse Mortgage

Reverse mortgages have been around since the 1960s. However, they remained an obscure financial tool, mainly because of consumer anxiety about a lack of guarantee on the lenders ability to meet financial obligations. However, in 1989, the first Home Equity Conversion Mortgages, more commonly known as a HECM reverse mortgage, was made available. This differed significantly to what was currently available as these reverse mortgages are insured by the U.S. Department of Housing and Urban Development (HUD).

As well as being insured by the government a HUD HECM reverse mortgage lender has to follow strict guidelines laid down by the Federal Housing Administration (FHA). Strict guidelines together with a government guarantee has now made reverse mortgages a popular choice for many seniors.

What is a HECM reverse mortgage?

If you are 62 years of age or over, own outright or have very little debt remaining on your home, your home is a single family dwelling or a two-to-four unit property that you own and occupy, you can apply for a reverse mortgage.

Unlike an ordinary home equity loan, you receive money rather than have to pay monthly repayments. With a reverse mortgage your home equity decreases rather than increases as it would do when you pay back your home equity loan.

You receive money for as long as you live in your home. The loan has only to be repaid when you sell your home, no longer live in it as your principal residence or you pass away.

During the whole term of the loan you retain the title deeds. Even when the loan is due to be paid back you or your heirs retains the title deeds of your home.

You or you heirs can pay back the HECM reverse mortgage loan anyway you like. It must be paid back as one lump sum. The money can be raised by selling the home, obtaining a regular mortgage, selling other assets etc.

The amount you can borrow against your home is strictly enforced by the FHA. Criteria used in determining how much you can borrow against your home include, the value of your home, the location of your home, current interest rates and, most importantly, your age. Basically, the more your home is worth and the older you are, the more you can borrow.

There is a ceiling on the amount that can be borrowed with a HECM reverse mortgage. The amount that may be borrowed is derived from the lower of the appraisal amount or FHA mortgage limit for the area, which varies from $200,160 to $362,790.

You can receive payments in several ways. Tenure - equal monthly payments as long as the borrower(s) lives and continues to reside in the property as a principle residence. Term - equally monthly pavements over a specified number of months. Line of Credit - payments made as and when you need them in any amount you want until the line of credit is exhausted. Modified Tenure - combination of line of credit with monthly payments for as long as the borrower remains in the home. Modified Term - combination of line of credit with monthly payments for a fixed period of months selected by the borrower.

FHA's reverse mortgage program collects funds from insurance premiums charged to the homeowners. Homeowners are charged an up front insurance premium which is 2% of the maximum claim amount that may be borrowed plus a 0.5% annual premium which is paid on a monthly basis for the life of the loan.

HECM payments do not affect your Social Security or Medicare benefits because those benefits
are not based on the assets of the recipient.

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HECM Reverse Mortgage