Many senior homeowners who are looking for a way to supplement their income are turning to Home Equity Conversion Mortgages (HECMs) as a way to convert their home equity into cash. A HECM, also called a reverse mortgage, allows seniors to access a portion of their home equity while remaining in their home and maintaining ownership.1 The process of acquiring a HECM loan is very similar to other types of financing, but prospective borrowers are often surprised to learn that they cannot access all of their home equity with a HECM.
The amount of home equity that a borrower can access depends on the following factors:
The Borrower’s Age – In order to qualify for a HECM loan the youngest borrower on title must be at least 62 years old. The age of the youngest borrower is used to estimate the length of the loan. The older you are when you take out a reverse mortgage, the more equity you will have access to.
The Value of the Home – The home’s appraised market value determines how much home equity the borrower has. Typically, the higher the value of the home, the more potential exists for accessing its equity. However, the HECM currently has a lending limit set at $679,650, any equity above this amount will not be considered to calculate the payout.
Current Interest Rates – Since borrowers do not need to make monthly mortgage payments2 with a reverse mortgage, interest rates are sometimes overlooked. However, for homeowners who want to access as much of their home equity as possible, a low interest rate is very important. A lower interest rate will result in a higher payout. Allow interest rates also decrease the amount of money added to the loan balance over the life of the loan.
The Borrower’s Financial Obligations – If the borrower has not paid off their existing mortgage, the amount needed to do so will be taken from the loan payment at closing.2 Also, if the borrower is unable to pay for property taxes and homeowners insurance from their savings, a portion of the loan payment will be withheld to ensure these expenses will be covered in future years.
If you are a senior homeowner looking to increase your income, a HECM loan may be an option for converting a portion of your home equity into the funds you need. To learn more or request a free eligibility assessment, contact a licensed loan advisor at 1 (800)976-6211 or click here to request a call back.
1 You will retain the title and ownership during the life of the loan, and you can sell your home at any time (at which time the loan becomes due). The loan will not become due and subject to repayment as long as you continue to meet loan obligations such as living in the home as your primary residence, maintaining the home according to the Federal Housing Administration (FHA) requirements, and paying property taxes and homeowners insurance. Failing to meet these requirements can trigger a loan default that may result in foreclosure.
2 Your current mortgage(s) and any other existing liens against the property must be paid off at or before closing.