A Home Equity Conversion Mortgage (HECM), also known as a reverse mortgage loan, is a Federal Housing Administration (FHA) insured loan1, which allows seniors to access a portion of their home’s equity without having to make monthly mortgage payments.2 Borrowers aged 62 years or older, who have sufficient equity in their home, may be able to get the funds now or establish a line of credit to put aside when needed. If there’s still a mortgage on the home, it must be paid off from the reverse mortgage loan proceeds.
If the borrower doesn’t have a current mortgage, it may increase the amount of money received. In some cases, and as required by FHA, a portion of the loan proceeds may be put into what is called a Life Expectancy Set Aside (“LESA”), to assist and ensure the Borrower can pay required property taxes and homeowners insurance. The loan becomes due and payable when the last surviving borrower dies, sells the home, or permanently moves out.
There are a few options in which to receive the HECM payments.
- A fixed-rate loan allows you to receive loan proceeds in a lump sum.
- An adjustable-rate loan you can select from the following to receive the loan proceeds:
- The tenure option provides monthly payments and maybe a supplement to existing retirement income such as Social Security or a pension.
- Term payments can be arranged to fit cash flow needs over a specified time frame, while modified forms provide flexibility.
- With a reverse mortgage line of credit, you can withdraw from the line of credit at any time and what isn’t withdrawn will continue to grow.
Are you interested in learning if a reverse mortgage loan can help you age in place? If so, call 1-800-976-6211 to speak with a licensed loan advisor.
1 As required by the Federal Housing Administration (FHA), you will be charged an up-front mortgage insurance premium (MIP) at closing and, over the life of the loan, you will be charged an annual MIP based on the loan balance.
2 Your current mortgage, if any, must be paid off using the proceeds from your HECM loan. You must still live in the home as your primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.