The Home Equity Conversion Mortgage (HECM) is an FHA insured reverse mortgage and is the safest and most popular type of reverse mortgage on the market. HECM’s are the only reverse mortgage insured by the federal government through the Federal Housing Administration (FHA), a division of the Department of Housing and Urban Development (HUD).
The HECM allows home-owners, ages 62 and better, to convert part of their home equity into tax-free proceeds. There is never a required monthly mortgage payment on a HECM, and there is no pre-payment penalty if the consumer ever chooses to pay the loan back in part or in full. Repayment of the loan can never exceed the home’s value and the heir’s will never inherit a debt, unless they choose to retain the home as their own property.The borrower retains the home as long as loan terms are satisfied.These terms include maintaining the property and paying property taxes, homeowner’s insurance and any HOA fees.The home must be the borrower’s primary residence.
Because the proceeds are a tax-free loan, there is generally no effect on Social Security or Medicare benefits. However, income-based programs may view the HECM as an additional cash flow source. Therefore, it is always best to consult an advisor when receiving benefits from an income-based program before pursuing the HECM.
The loan amount of the HECM is based on the age of the youngest borrower or eligible non-borrowing spouse living in the home, the home value, and current interest rates. Borrowers must attend HUD-certified counseling prior to applying for a HECM loan.
There are several ways to receive the funds from the HECM including:
*Fixed rate mortgages are limited to the single lump sum disbursement option. The disbursement of mortgage proceeds during the first twelve-month period is subject to an initial disbursement limit.
Line of Credit Explained
Eliminate a Mortgage Payment
Aspects of the non-recourse feature are as follows: