What the HECM is a Reverse Mortgage?!

When it comes to reverse mortgages, there are a lot of acronyms to know. And trying to decode all of them has the potential to leave you feeling as if you’re drowning in alphabet soup. Fortunately, we’re here to help. And if there’s one acronym to start with it’s this: HECM.

“So, what the heck is a HECM?”
Great question! A HECM is short for Home Equity Conversion Mortgage – also known simply as a reverse mortgage. HECM reverse mortgages allow homeowners ages 62 and older to convert a portion of their home’s equity into cash1 without having to sell or leave the home.

Insured by the Federal Housing Administration (FHA) since 1988, today’s reverse mortgages come with consumer safeguard measures, contrary to the several misconceptions and bruised reputation of years ago.

Prior to submitting an application for a reverse mortgage, all borrowers are required to meet with an independent third-party counselor approved by the US Department of Housing and Urban Development (HUD) to discuss the responsibilities that come with the loan. What’s more, FHA-insured reverse mortgages are non-recourse loans. This means that you (or your heirs) will not owe more than the value of your home when the home is sold and the loan is repaid. In the even that your loan balance is greater than your home’s appraised value, the excess amount is covered by federal mortgage insurance – the Mortgage Insurance Premium (MIP) that is paid over the life of the loan.

“How is a HECM different from a regular mortgage?”
Unlike a traditional “forward” mortgage, where borrowers must begin repaying the loan right away, homeowners do not have to repay funds received through a HECM until after the final borrower no longer lives in the home as their primary residence or becomes unable to meet the loan terms.

Better yet, there are no monthly mortgage payments required2. With a reverse mortgage, you can pay as little or as much as you want, as often as you’d like. If you have an existing mortgage on your home, the proceeds from the reverse mortgage are first used to pay off that loan. And since mortgage payments on the reverse mortgage are optional, you can eliminate that expense and leverage the remaining cash for what matters most to you.

“Who can get a HECM?”
HECM reverse mortgages are available to homeowners ages 62 or older with sufficient equity in their homes. In order to qualify for a HECM, you must continue to live in the home as your primary residence and meet minimum property standards as set by HUD. However, in some instances, you may be able to use your reverse mortgage proceeds to pay for any required repairs to meet these standards. To be eligible for the loan, you must not have any outstanding federal tax liens and must have made your property tax payments for the last two years. To see if you are a good candidate for a reverse mortgage, check out our blog.

The more equity that is in your home, the more likely It is that you can get cash from a reverse mortgage. While there is no minimum amount of equity required for a reverse mortgage, a general “rule of thumb” is that your equity should equate to at least 50% of your home’s value. And with home values currently on the rise, many homeowners are finding that they can qualify for even more reverse mortgage funds than in the past. Run the numbers for yourself with our reverse mortgage calculator.

FHA Loan for Seniors

“How much can I get?”
Now for the question on everyone’s minds – how much money can you expect to receive from a HECM? And the short answer here is, “it depends.” While the FHA recently announced that the national lending limit for the HECM reverse mortgage program has increased to $970,800, the amount of home equity you’ll be able to access is calculated by accounting for several variables. For example, the amount of proceeds known as “the principal limit” will depend on your age, home value, current interest rate, and payout distribution method. You can learn more about each of these variables on our blog.

“How can I use the funds?”
Reverse mortgages tap into your home equity. And as such, you can leverage the loan proceeds to be used however you wish. There are no restrictions on what you can use the money for. Some common uses we see among borrowers include paying bills, offsetting healthcare costs, making “aging in place” modifications to their homes, establishing a financial “safety net” for the future, or helping loved ones with large expenses. And that’s just the beginning – check out our blog, “10 Ways You Can Use Reverse Mortgage Proceeds” for even more.

And there you have it – the facts on HECM reverse mortgages. If you’re interested in tapping into your home equity with a HECM reverse mortgage, you may find yourself wondering what exactly the process entails. While we’ve covered what you can expect – including a timeline of the reverse mortgage process – on our blog, the first step is to work with a reputable reverse mortgage lender to decide if the loan is right for you.

At Longbridge Financial, reverse mortgages are all that we do. And we’re committed to responsibly helping homeowners reshape their financial future by educating them on HECMs – and helping them unlock the power of their homes.

We get to know you, and take the time to understand your situation, so we can offer solutions that are tailored to your needs. And if we ever feel that a reverse mortgage isn’t right for you, we will tell you so. Not all lenders make that pledge.

Have a question about HECMs that we didn’t cover? To learn more, contact the Longbridge team of reverse mortgage experts today.

1 The loan balance increases over time as interest on the loan and fees accumulate
2 Real estate taxes, homeowners insurance, and property maintenance required

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