The federally regulated and guaranteed FHA Reverse Mortgage is known as a Home Equity Conversion Mortgage (HECM).
What is a Home Equity Conversion Mortgage (HECM)?
An HECM is a federally regulated program for homeowners aged 62 and older. It allows the equity in your home to pay you, rather than you paying for the home. The HECM is a safe way for you to access the equity in your home without ever making a mortgage payment.
How is the program “safe” for senior homeowners?
No matter what happens in the economy, how much money you receive, or how long you live in your home, you will never be required to make a mortgage payment. In addition, no matter what happens to your lender or your home’s value, you have guaranteed access to your money.
Who owns the home if I take an HECM mortgage?
You own the home. However, you pledge the home as collateral.
What happens if in the future, the loan exceeds the value of the home?
Your HECM will continue – thanks to the federal insurance. If it is set up with a line of credit, it will continue, as well as any monthly disbursements you have set up.
How are HECM mortgages different today?
Today’s HECM mortgages are highly regulated by state and federal laws to make them safe and to protect you. Among others, the following regulations apply: -You retain title to the home. -No equity share is allowed, meaning the lender does not slowly take over your home. -Fees and costs are federally regulated.
How does an HECM mortgage compare to a conventional mortgage?
In a conventional forward mortgage, you make monthly payments to the bank eventually paying off the mortgage over time. With an HECM mortgage, you receive cash from your lender, as lump sum up front, as monthly installments or as a line of credit that grows over time. As long as you live in your home, you never have to pay off a single dollar of the loan.
What restrictions apply to the cash I receive from an HECM?
It is your money and you can use it the way you want. It’s non-taxable and does not affect Social Security payments. We do recommend that you talk to a competent financial adviser to determine the effect on any other benefits you may be receiving.
When does an HECM become due and what happens then?
When you no longer live in your home or when you pass away, the HECM becomes due. You or your heirs have two options:
1. Pay off the HECM including the accrued interest and retain ownership.
2. Give up ownership of the home and receive the difference between the net sales proceeds and the loan balance. You will not be liable for any shortfall if the sales proceeds do not cover the loan. Your loan may also become due and payable if you do not continue meeting the terms of the loan. (For example, paying taxes and insurance owed on the property.)
What are my obligations under an HECM?
With an HECM you retain title to your home. This means that you also have all your obligations as a homeowner. You are responsible for the homeowner taxes and insurance.
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