Turn home equity into retirement flexibility
A Home Equity Conversion Mortgage (HECM) is the most common type of reverse mortgage loan available to homeowners age 62 and older. This loan allows eligible borrowers to convert a portion of their home equity into accessible funds while continuing to live in their home.
HECM reverse mortgage loans are insured by the Federal Housing Administration (FHA) and are only available through FHA-approved lenders, such as Fairway.
Curious what you may qualify for? Use our free reverse mortgage calculator!
Key Benefits:
Increased Cash Flow.
You can access cash from a portion of your home equity without incurring income tax* (generally, it won’t affect your Social Security and Basic Medicare benefits).
*This does not constitute tax advice. Please consult a tax advisor regarding your specific situation.
Use the Funds How You Want
- Eliminate your mortgage payment (must pay property charges like taxes, insurance, and maintenance)
- Fund home improvements
- Cover medical expenses
- Enhance cash flow
- Protect your portfolio
- Purchase your dream home
Flexible Repayment
HECM reverse mortgage loans provide flexibility when it comes to repayment.
- Make voluntary payments toward the loan balance
- Repay a portion of the balance periodically
- Or make no monthly mortgage payments
You must still maintain the home and pay homeowners insurance and property taxes, just like a traditional mortgage.
The FHA guarantees no repayment of the loan is required until the last borrower moves out or passes away. When you move out of your home, you or your estate has up to 12 months to repay the loan balance, which is typically achieved by selling the home.
Non-Recourse Feature
The FHA guarantees that if the balance on the loan exceeds the home value at the time the home is sold, neither you nor your heirs will be responsible for paying the deficit (the FHA will pay it). If there are excess proceeds from the sale of your home, you (or your heirs) would receive them.
Line of Credit with Guaranteed Growth of Unused Funds
With a HECM reverse mortgage line of credit, the unused portion of the line of credit will grow each month at the same rate as the loan balance. In other words, you will have access to even more funds over time, regardless of home value.
Ways Loan Proceeds Can Be Taken
- A lump sum payout
- Fixed monthly advances
- Tenure (life of the loan)
- Term (set period of time)
- A line of credit
- A combination of monthly payments and a line of credit
General Eligibility
The borrower(s) must:
- Be 62 years or older
- Live in the home as his or her primary residence and either own the home outright or have significant equity in the home
- Meet minimum credit and property requirements
- Must receive reverse mortgage counseling from a HUD-approved counseling agency
- Must not be delinquent on any federal debts
Eligible Properties
- Single-family residence
- 2- to 4-unit properties
- Manufactured homes
- Modular homes
- Planned unit developments
- Townhomes
- FHA-approved condominiums
DID YOU KNOW? You can also use a reverse mortgage to buy a new home that better fits your needs in retirement. This home financing option is called a HECM for Purchase (H4P).
Frequently Asked Questions
How does a HECM Work?
A Home Equity Conversion Mortgage (HECM), also known as a reverse mortgage, allows eligible homeowners age 62+ to borrow against a portion of the equity in their home. Instead of making monthly mortgage payments, borrowers typically receive funds from the lender while continuing to live in the home as their primary residence, provided they remain current on property taxes, homeowners insurance, and other property obligations. Generally, the loan becomes due when the last borrower permanently moves out of the home or passes away, at which point the home is typically sold to repay the loan balance.
What is the interest rate on a HECM loan?
Reverse mortgage interest rates can vary by lender and whether you select a fixed or variable product. The variable interest rate is composed of two parts: an index and a lender margin (both are stated in the mortgage contract). Fairway uses the weekly average of the Constant Maturity Treasury (CMT) as the index. To find out what the current reverse mortgage interest rates are, please reach out to a Fairway retirement mortgage specialist.
Who qualifies for a HECM?
To qualify for a Home Equity Conversion Mortgage (HECM), you must:
- Be 62 or older
- Own your own home (must be an eligible property type) and reside in it as your primary residence
- Own the home outright or have significant equity in the home
- Meet minimal income and credit requirements
- Attend a financial counseling session with a HUD-approved counseling agency
What are the pros and cons of a HECM?
The Pros of a Home Equity Conversion Mortgage (HECM):
- Convert a portion of your home’s equity into cash, fixed monthly advances, or a growing line of credit (unused funds grow over time)
- No required monthly mortgage payments for as long as you meet the loan terms (living in the home as your primary residence and paying property taxes, insurance, and upkeep)
- Flexible repayment options—you can pay down the loan balance at any time, if you choose
The Cons of a HECM:
- The unpaid loan balance grows over time due to interest and fees added to the balance
- Drawing on your home equity reduces the amount of inheritance that may be available to your heirs from that asset
Is a HECM a second mortgage?
No. A Home Equity Conversion Mortgage (HECM), commonly called a reverse mortgage, must be in the first lien position. However, the proceeds from a HECM can be used at closing to pay off or refinance an existing first or second mortgage, as long as the existing lien meets certain seasoning guidelines (for example, liens that have been in place longer than 12 months or resulted in less than $500 cash to the borrower). Some exceptions now apply for certain Home Equity Lines of Credit (HELOCs).
How is a HECM repaid?
Generally, the loan becomes due when the last borrower permanently moves out of the home or passes away, at which point the home is typically sold to repay the loan balance. As reverse mortgages are non-recourse loans, the sale of the home after loan maturity will always satisfy the loan repayment obligation — neither the borrower nor their heirs will be personally liable for any balance deficiency.
Let’s start a conversation.
If you are interested in the reverse mortgage loan, contact us today. Our experienced team of Reverse Mortgage Planners will help you to understand HECMs, so you can make an informed decision about whether it is the right financial solution for you.
*Source: https://www.cbsnews.com/news/best-reverse-mortgage-companies-2023/