A home equity conversion mortgage, or HECM, is commonly known as a reverse mortgage. These products allow adults 65 and older to supplement their income with their home equity or, in some circumstances, purchase a primary residence. While many lenders offer this type of product, it is the only type of reverse mortgage that is insured by the federal government. Those interested in a loan of this type must apply for it through a lender approved by the Federal Housing Authority (FHA).
What are the terms of a HECM?
With this type of loan, there are no monthly payments or fees; instead, you receive a monthly cash payment until you no longer use the mortgaged home as your primary residence. When the creditor dies or sells the property, the cash, interest, and finance charges must be repaid, usually through the property’s net worth. Any proceeds remaining after the debt is paid can be withheld or left to surviving family members. Your spouse or loved ones will not be responsible for this debt.
Who is eligible for a HECM?
To qualify for this type of financial product, you must be at least 62 years old, own paid property or have substantial home equity, and live in the property as your primary residence. You must not be behind on any federal debt and you must have the financial resources to pay the costs associated with the property, including taxes, insurance, and association fees. As part of the application process, you must also attend an official information session. Qualifying properties include a single-family or multi-unit property in which you occupy one of the units, as well as certain approved manufactured homes and condominiums.
How much money will I receive?
The amount of the monthly payment depends on the amount of principal you have, your age, and the current interest rate. Your lender will verify your income, assets, expenses, and good credit, as well as make sure you are up to date with taxes and insurance premiums. If you opt for a fixed rate loan, you will receive a one-time, lump sum payment plan, which means that you will receive the same amount of money each month. Those who opt for an adjustable rate can choose between fixed monthly payments, flexible monthly payments financed by a line of credit, or a combination of the two.
What are the associated costs?
The costs of this loan include an insurance premium between 5 and 2.5 percent of the total loan amount; any third party charges, such as appraisal, title and insurance search and inspections; an initial fee of up to $ 6,000; and a monthly service fee of up to $ 35. You can choose to finance these costs as part of the mortgage, reducing the total number of payments you will receive, or paying the costs up front.
You can learn more about whether a reverse mortgage is right for you by consulting with an FHA-approved lender.