If you’re exploring whether a reverse mortgage is right for you, understanding the facts is the best place to start.
This easy-to-read guide answers the most common questions about Home Equity Conversion Mortgages (HECMs), explains how they work, and clears up common misconceptions, helping you make a more informed decision with confidence.
What is a Home Equity Conversion Mortgage (HECM)?
A HECM is a mortgage that is insured by the federal government and regulated by Federal and California laws. It gives you cash from your home, without ever having to make monthly loan payments.
Who can benefit from a HECM?
Anybody 62 or older who owns a qualifying house or condominium can apply for a HECM.
Who is the typical HECM customer?
Currently, several hundred thousand homeowners benefit from a HECM. They are from all walks of life. Your neighbor might be a HECM customer. What they all have in common is that they are 62 years or older and want to get some cash from their home. Many HECM customers use their proceeds to pay off their conventional mortgage.
What does government-insured mean for me?
You are protected until you turn 150 years old! Your HECM will continue even if the balance of your loan exceeds the value of your home. The line of credit will still be available and you will continue receiving monthly disbursements you may have set up. The lender will never ask you for money to cover possible losses or reduce disbursements to you.
Who owns the home?
With a HECM, you continue to own the home. However, you pledge the home as collateral.
How does a HECM compare to a conventional mortgage or HELOC?
Conventional mortgages and HELOCs all have a due date. You have to pay off the conventional mortgage through monthly payments or a balloon payment by a certain time.
With a HECM, there are no monthly loan payments required for you, ever. (The usual property expenses such as taxes, insurance, maintenance and others still are due). The loan becomes due when you and your eligible spouse no longer live in the property.
I do have a “conventional mortgage;” can I still get a HECM?
This is a typical situation. All other mortgages can and must be paid off with the HECM. Actually, most HECM customers use part or all of the HECM proceeds to do just that, thus eliminating monthly payments for their mortgage.
What restrictions apply to cash I receive?
It is your money; you can do whatever you want to do with it.
V.I.P. Independent Mortgage, Inc. does not make any recommendation on how you use your money. However, we urge you to be careful when making financial investments. A Certified Financial Planner may be a good source for advice.
What tax implications apply to the cash I receive?
There is no income tax on the cash you receive from a HECM, nor does it affect Social Security or pension payments. However we suggest you talk to a certified public accountant or certified financial planner to determine the effect on other benefits you may be receiving.
When does the HECM become due and payable?
When you and your spouse no longer live in the property or if both of you have passed away, the HECM becomes due. In that case, you or your heirs have two options:
- Pay off the HECM, including the accrued interest. You or your heirs retain ownership of the house. Lines of credit or tenure reserves that have not been drawn do not have to be paid off!
- Give up ownership of the house and receive the difference between the net sale proceeds of the house and the loan balance, minus the cost for selling the house. Neither you nor your heir will be liable for any shortfall, in the event the net sales price is less than the balance of the loan.
The HECM may also become due for failing to adhere to the loan agreement.
What are my obligations with a HECM?
You remain owner of the house. Therefore, you have all obligations of home ownership. You are responsible for taxes, insurances, and other fees that might apply. Also you must maintain the house. Once you don’t live in the property anymore, the HECM becomes due.
