A home equity conversion mortgage, or HECM, is commonly known as a reverse mortgage. These products allow adults older than age 65 to supplement their income with the equity in their homes, or in some circumstances, to purchase a primary residence. While many lenders offer this type of product, it is the only type of reverse mortgage that is insured by the federal government. Those interested in a loan of this kind must apply through a Federal Housing Authority (FHA) approved lender.
What Are the Terms of an HECM?
With this type of loan, there are no monthly payments or fees; rather, you receive a monthly cash payment until you no longer use the mortgaged home as a primary residence. When the loan holder dies or sells the property, the cash, interest, and finance charges must be repaid, usually through the equity in the home itself. Any remaining proceeds after the debt is paid can either be retained or left to surviving family members. Your spouse or loved ones will not be responsible for this debt.
Who Is Eligible for an HECM?
To qualify for this type of financial product, you must be at least 62 years old, either own a property that is paid off or have substantial equity in the home, and live in the property as a principal residence. You must not be delinquent on any federal debt and must have the financial resources to pay costs associated with the property, including taxes, insurance, and association fees. As part of the application process, you are required to also attend an official information session. Qualifying properties include either a single family or multi-unit property in which you occupy one of the units, as well as certain manufactured homes and approved condominiums.
How Much Money Will I Receive?
The monthly payment amount depends on the amount of equity you have, your age, and the current interest rate. Your lender will verify your income, assets, expenses, and good credit, as well as ensure you are up to date on taxes and insurance premiums. If you opt for a fixed-rate loan, you’ll receive a Single Disbursement Lump Sum payment plan, which means you’ll receive the same amount of money each month. Those who opt for an adjustable rate can choose between fixed monthly payments, flexible monthly payments funded by a line of credit, or a combination of the two.
What Are the Associated Costs?
Costs for this loan include an insurance premium between.5 and 2.5 percent of the total loan amount; any third-party charges, such as appraisal, title search and insurance, and inspections; an origination fee of up to $6,000; and a monthly servicing fee of up to $35. You can choose to finance these costs as part of the mortgage, which will reduce the total amount of payments you’ll receive, or pay the costs upfront.
You can learn more about whether a reverse mortgage is right for you by consulting with an FHA-approved lender.