Home Equity Conversion Mortgage (HECM)
What is a HECM?
HECM stands for Home Equity Conversion Mortgage. This type of mortgage has been available to homeowners since 1961 and has been insured by the Federal Housing Administration (FHA) since 1988. A HECM is designed for homeowners ages 62 and older and allows them to tap into some of the equity in their home. This cash can be accessed without having to sell or move out of the home, and without having to make monthly mortgage payments1.
- No monthly mortgage payments required1
- You continue to own your home
- You choose how you’d like to receive your funds:
- A one-time payment, income tax-free2
- Steady, income tax-free monthly payments2
- A line of credit
- Any combination of these
- Independent, HUD-approved counseling to help you understand your options
- Keep up with everyday bills and living expenses
- Eliminate or reduce credit cards or other debts
- Help with healthcare costs, making it easier to “age in place”
- Set aside funds for unexpected expenses or long-term care
- Make home updates, repairs, or modifications to live more comfortably
- Help out family members with major expenses
The line of credit is a unique feature of the HECM program and offered through the variable-rate option. Unlike a traditional mortgage, a reverse mortgage credit line can never be reduced or frozen1 and there is no prepayment penalty. In fact, the unused portion of the credit line is guaranteed to increase over time and will grow at the same rate as the interest accrued on your outstanding loan balance. Exclusive to the HECM reverse mortgage program, this feature continues to be a very popular option for accessing funds among homeowners as a way of prolonging the longevity of other investments in their portfolios.
Single Lump Sum – Many homeowners decide to use their reverse mortgage proceeds to pay off an existing mortgage or to buy a new home. In this case, a single lump sum payment typically works best.
Line of Credit – Some homeowners don’t have an immediate need for cash but want to establish a line of credit for peace-of-mind. This is a great option should you need to access cash in the event of an emergency or unexpected bills.
Term Payments – Retirees supplementing their monthly income often choose term payments. This provides equal monthly payments for a fixed period of their choosing. Shorter terms will receive larger monthly payments than longer terms.
Modified Term – A blend of both term payments and a line of credit, modified term allows homeowners to receive scheduled monthly payments while holding funds in reserve as a line of credit.
Tenure – Homeowners choosing the tenure option will receive equal monthly payments as long as one borrower on the loan still lives in the property as their primary residence.
Modified Tenure – Similar to modified term, modified tenure is a blend of tenure and a line of credit. Homeowners choosing this option can expect smaller scheduled monthly payments along with an available line of credit.
1 Borrower must continue to pay property taxes, insurance, and maintenance.
2 Consult a financial advisor and appropriate government agencies for any effect on taxes or government benefits.