Reverse Mortgage - HECM
Overview
The
Home Equity Conversion Mortgage, or HECM, offers senior homeowners a
viable option for tapping the equity in
their homes, while giving them maximum flexibility to address their
particular financial needs. Our goal in this chapter is to answer some
of the most commonly asked questions about this type of reverse
mortgage, so that you can compare the HECM with the Home Keeper®
Mortgage and other financing options that may be available to you as a
senior homeowner.
What is a HECM?
The Home Equity Conversion Mortgage is a reverse mortgage designed by
the U.S. Department of Housing and Urban
Development (HUD) and insured by the Federal Housing Administration
(FHA) to give older homeowners a vehicle for
converting the equity in their homes to cash. Like the Home Keeper
Mortgage, the HECM allows you to tap
your home equity and receive your loan proceeds according to a payment
plan that you select — whether it is a lump sum to pay an unexpected
hospital bill, or a stream of regular payments to supplement your
monthly income. No repayment
of your HECM is required until your home is no longer your principal
residence — at your death, or when you sell the
property, convey title, or do not occupy the property for 12 months. At
that time, you or your estate will owe the loan
balance or the market value of your property, whichever is the lesser
amount. As with most reverse mortgages, the loan is
generally repaid through the sale of the property, although sale of the
property is not required. Any sales proceeds in
excess of the amount owed the lender belong to you or your estate. All
Fannie Mae-approved lenders must offer the HECM
product as well as the Home Keeper. (In Texas, different rules and
regulations apply. Consult a local lender or nonprofit
reverse mortgage counselor for a detailed explanation.)
Borrower protection
A significant feature of the HECM is that it is insured under the
government’s Federal Housing Administration (FHA)
insurance program. This program ensures that you will receive all
payments due to you as long as you live in your home. It
also ensures that your lender will receive full repayment of your loan
balance, even if it is greater than the value of your
property.
The FHA insurance premiums that you pay as a HECM borrower create a
reserve fund to cover any losses
that might occur. The FHA insurance on HECMs also protects borrowers
and lenders against the risk that the loan balance might, at some time,
exceed the value of the home. This means that as long as you continue
to occupy your property as your principal residence, you cannot be
forced to sell or vacate your home — even if the loan balance exceeds
the value of your home or if the fixed term over which you received
your monthly payments has expired. In addition, as a HECM borrower, you
or your estate will never owe more than your loan balance or the value
of your property — whichever is lower — and no assets other than your
home must be used to repay your debt, because the FHA insurance covers
any further financial obligation to the lender. FHA insurance also
protects you against the possibility of lender default. Should your
lender fail to make payments to you as agreed in the loan, the FHA will
continue making loan advances directly to you.
Get
the Reverse Mortgage facts
before you cash in your home's equity