Home Equity Conversion Mortgages (HECM)
Convert home equity into cash, offering financial flexibility in retirement.
What is a Home Equity Conversion Mortgage?
A Home Equity Conversion Mortgage (HECM) is a special type of reverse mortgage that allows homeowners aged 62 or older to convert a portion of their home equity into funds to cover retirement expenses. This option helps seniors maintain financial independence without selling their homes.
What are the benefits of a HECM?
- Access Funds Without Selling: You can use the equity in your home for financial needs without the need to sell the property.
- Flexible Loan Options: Choose between an adjustable or fixed-rate loan.
- Receive Funds in Various Forms: You can opt for a line of credit, lump sum, monthly payments, or a combination of these.
- Financial Independence: Helps you maintain a level of financial flexibility in retirement.
How is a HECM different from a Reverse Mortgage?
- HECM: This is an FHA-insured product, available since 1989, with a maximum loan claim limit of $822,375.
- Reverse Mortgage: Offered by private investors, with loan amounts that can go up to $4 million. Both products provide financial flexibility using home equity, but the main difference is in the loan limits and the type of insurer.
Reverse Mortgage Eligibility Requirements
To be eligible for a reverse mortgage (HECM), you must:
- Existing Mortgage: Your current mortgage balance must be low enough to be paid off with the HECM loan proceeds.
- Age 62 or Older: Only seniors aged 62 and above can apply.
- Attend HUD Counseling: Complete a counseling session with a HUD-approved agency and receive a certificate of completion.
- Primary Residence: The property must be your primary residence.
Special Considerations:
- Counseling: A HUD-approved counselor must assess whether a HECM is suitable for your situation.
- Repayment: The loan is repaid when the homeowner passes away, sells the home, or moves out. Heirs can repay the loan by selling the home or refinancing it.
- Ongoing Responsibilities: Homeowners must continue to pay property taxes, homeowner’s insurance, and maintain the home in good condition.