Reverse Mortgage (HECM)
A Reverse Mortgage, or more accurately, a Home Equity Conversion Mortgage is an FHA loan that enables established homeowners (ages 62 and up) to convert equity in their homes into tax-free cash, without selling their home, giving up title, or incurring a new monthly mortgage payment. The proceeds from the loan can be used for anything the homeowner desires. With a reverse mortgage, the borrower does not have to make any payments as long as he/she lives in the home. The loan is repaid when the borrower dies, sells the home, or when the home is no longer the borrower’s primary residence.
The amount the homeowner is eligible to receive depends on various factors including the age of the youngest borrower, the value of the home and current interest rates. The money is not taxable income and does not directly affect Medicare or Social Security Benefits.
There are no income or credit requirements beyond proving that the borrower is able to continue to pay the taxes and insurance associated with the home.
Potential Benefits of Reverse Mortgages
- No monthly payments and no repayment is required until all borrowers are no longer using their property as their primary residence, all parties on the deed pass away, or they fail to pay their property taxes and homeowners insurance.
- Tax free monthly income*
- Payments can be used for whatever the borrower wants to spend the money on including home renovations, consolidating debt, paying for medical expenses and insurance costs, and traveling and other leisure activities
- Reverse mortgages provide a tool that allows seniors to tap into the equity that they have built in their homes. Plus, there are no income or minimum credit score qualifications. In today’s tightening credit markets, reverse mortgage products may be one of the best and only solutions available to most retired homeowners.
- Possibly the greatest benefit of all, reverse mortgage programs may help seniors remain in their homes that they have worked so hard to pay for throughout their lives.
- A reverse mortgage is what we call a non-recourse loan. This means that with a reverse mortgage you are not personally liable. The liability is only to the extent of the value of your home at time of sale, death or vacating the premises as your permanent residence. You are not liable nor are your heirs personally liable; they can either sell the home at time of your death or keep the home and pay off the remaining balance of the Reverse Mortgage.
Since the Home Equity Conversion Mortgage is a an FHA loan administered by the Department of Housing and Urban Development, the homeowner is required to complete a counseling session to make sure he/she understands all the details of the loan.