By Toni Ryan, First Priority Financial
Have you asked yourself this question? The Home Equity Conversion Mortgage (HECM) is FHA's reverse mortgage program. This plan enables a homeowner 62 years of age or older to withdraw some of the equity in their home. The HECM is a safe plan that can give older Americans greater financial security. Many seniors use it to supplement Social Security, meet unexpected medical expenses, make home improvements or purchase a home with NO monthly payment.
Basically, the equity that you built up over years of making mortgage payments can be paid to you. However, unlike a traditional home equity loan or second mortgage, HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage. You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing. This usually requires a 35 to 40% down payment but the senior will not have a monthly pinciple and interest payment and will not be tying up as much liquid cash as when they purchase a home for all cash.
To be eligible for a FHA HECM, the FHA requires that you be a homeowner 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off with proceeds from the reverse loan, and you must live in the home.A big question for many borrowers is "Will we still have an estate to leave our heirs?"When the home is sold or no longer used as a primary residence, the cash, interest, and other HECM finance charges must be repaid. All proceeds over the amount owed belong to your spouse or estate. This means any remaining equity can be transferred to the heirs. No debt is passed along to the estate or heirs.
It is important to note that your still retain ownership of your home and you can refinance out of a reverse mortgage as long as there is equity remaining in your home.
If you and your spouse are 62 or older and would like to access the equity in your home without an monthly payment for any reasons and be assured that you can remain in your home until you choose to move or do not meet the requirements which include home maintenance, and the ability to pay taxes and insurance, then the FHA Home Equity Conversion Mortgage is a positive option to consider. Contact a knowledgeable mortgage consultant to discuss all your options.