Q: What are the details about a HECM (Home Equity Conversion Mortgage) program?
A: These programs are special types of mortgage loans that enable you, as an older homeowner, 62 years of age or older, to tap into the equity you have in your home while giving you the maximum amount of flexibility to address your particular financial needs or desires. You may choose a lump sum payment to pay off debt, fix up your home or other expenses. You may wish to receive regular monthly payments to supplement your income or a line of credit that you can tap into at any time. You may be able to combine the cash, monthly payment or credit line options if that fits your needs.
Unlike traditional home equity lines, no repayment of the HECM mortgage is required until you no longer occupy the home as your principal residence. At that time, the loan becomes due and payable.
With a Reverse Mortgage, you borrow against the equity of your home, and receive loan proceeds according to the payment plan that you select. These plans are described on the following pages. As a borrower, you may change payment plans as many times as you wish, unless you take the full amount available in a lump sum at closing.
When you sell your home or vacate it for other reasons, the accrued interest plus what the lender has paid to you or on your behalf through the years is due and payable, usually out of the proceeds from the sale of your home.
Q: How does the HECM differ from a home equity loan?
A: While the HECM and a home equity loan enable you to turn the equity in your home into spendable dollars, there are some important differences between the two types of mortgages. With a home equity loan, you must make regular payments to repay the loan. These payments begin as soon as the loan is originated. To qualify for such a loan, you must earn a monthly income great enough to make those payments. If you fail to make the monthly payments, the lender can foreclose, and you could be forced to sell your home. In addition, you may be required to re-qualify for a home equity loan each year. If you do not qualify, the lender may require you to pay the loan in full immediately. A HECM does not have any traditional qualifications and it never requires a monthly payment so there is no need to worry about someone taking your home away.
Q: Who is eligible for a HECM?
A: You, and any co-borrowers, must be at least 62 years old. If a borrower is under the minimum age they can be removed from title but we want to enter into this cautiously. The home must be owner occupied. You must own your home free and clear or with no more debt than could be repaid from the proceeds of the new reverse mortgage. You must also receive reverse mortgage counseling from a HUD-approved counseling agency. We encourage family members, friends, or other advisors to attend this counseling session with you. It is for your protection, making certain that you received the correct information.
Q: Must I pay off any loans or liens that are against the property?
A: All prior loans or liens must be paid off to get a HECM; but they can be paid off with the proceeds from the reverse mortgage.
Q: What are the minimum and maximum amounts that I can borrow?
A: There is no minimum borrowing amount. The factors used are: the age of the youngest borrower, the expected interest rate, and the “maximum claim amount”. The maximum claim amount is the lesser of the appraised value of your home or the maximum loan amount (currently $636,150).
Q: What types of payment plans are available with the HECM program?
A: The HECM program offers five payment options: Term, Tenure, Modified Term, Modified Tenure, or Line of Credit (Cash)
Under the term option, you may receive equal monthly payments for a fixed period of time selected by you.
Under the tenure option, you may receive equal monthly payments for as long as you own and occupy the home as your principal residence.
Under the line of credit option, you may withdraw at times, and in amounts of your choosing, up to the maximum amount of cash available; as long as you own and occupy the home as your principal residence.
The modified term plan allows you to set aside a portion of loan proceeds as a line of credit and receive the rest in the form of equal monthly payment for a fixed period of time.
Under the modified tenure option, you may set aside a portion of loan proceeds as a line of credit and receive the rest in the form of equal monthly payments for as long as you own and occupy the home as your principal residence.
If you select either of the term plans, you can remain in your home after the end of the loan term without starting repayment. The same is true if you have withdrawn the maximum amount under the line of credit or modified tenure payment plan. Remember, repayment is not required until you no longer own and/or occupy your home as your principal residence.
The fixed rate program requires you to take all available proceeds at closing.
Q: How will the amount of the monthly payment be calculated?
A: Your payments will be calculated using the HUD/FHA computer software. Factors that affect the amount of money you will receive include: the age of the youngest borrower, current interest rates, maximum claim amount, and the length of time that you will be receiving payments, whether it be for a fixed period of time (term option) or for as long as you live in the home (tenure option). The older you are, the larger your monthly payments are likely to be.
For a free, personalized breakdown of how much money you can receive with a Reverse Mortgage, please take a moment to send in the “Request for Information”.
Q: Will HECM payments affect my Social Security, Medicare Supplemental Security Income, or Medicaid benefits?
A: HECM payments do not affect your Social Security or Medicare benefits. Those benefits are not based on assets of the recipient.
HECM advances may be added to your liquid assets under some programs if not spent in the month received, and may affect your eligibility for some programs. We suggest you consult the local offices for these programs or any others to determine how HECM payments may affect your particular situation.
Q: Will I have to pay fees to obtain an HECM mortgage?
A: Only a small amount of $300 is collected to offset the cost of the appraisal. All other closing costs and fees can be financed into your loan. Reverse Mortgages may have an origination fee, mortgage insurance premium, and other normal closing costs. These fee’s are monitored and capped by FHA.
Q: Can I be forced to sell or vacate my home if the money I owe on the loan ever exceeds the value of my home?
A: Absolutely not, as long as you continue to occupy the property as your principal residence. You cannot be forced to sell or vacate the property, even if the total amount you owe on this loan exceeds the value of the property; or if the fixed term over which you received monthly payments has expired. No deficiency judgment may result from your loan. FHA insurance covers any further obligation to the lender.
Q: Will I still have an estate that I can leave to my heirs?
A: Upon your passing, the loan balance consisting of principal paid to you or on your behalf, plus any accrued interest, becomes due and payable. Your estate may choose to repay the loan by selling the property or they may want to pay it off by other means so they can keep the home. If the loan should exceed the value of your property, your estate will owe no more than the value of the property; the mortgage insurance will cover any balance due to the lender. No additional financial claims may be made against your heirs or estate. You will never owe more than your property is worth!
Q: If my home appreciates in value during the mortgage term, who will be entitled to that money?
A: You or your estate are legally required to pay back to the lender only the outstanding balance due. Any money remaining after the mortgage is paid belongs to you, or upon your death, your estate.
Q: What if I decide to sell my home?
A: If you choose to sell your home, the outstanding balance becomes due and payable to the mortgage lender, just like any other mortgage. Any proceeds left over once the loan is paid belong to you.
Q: Can I sell my home to my children and continue to live in it?
A: If you sell your home to your children or any other individual (or simply give them title), the loan will become due and payable. After the loan is repaid, any arrangement for your continued occupancy of the property must be made with the new owners.
Q: Is this a fixed rate loan?
A: There are both fixed and adjustable programs available. We will compare both programs for you.
Q: What if my home needs repairs?
A: No problem, during the processing of your loan we get a bid on any required repair. You approve the bid then we are able to close your loan and get the repairs done using the proceeds of your new reverse mortgage. No money out of your pocket!