A Home Equity Conversion Mortgage (HECM), commonly known as a reverse mortgage, is a Federal Housing Administration (FHA) insured loan1 which enables you to access a portion of your home’s equity without having to make monthly mortgage payments.2 If you are 62 years of age or older and have sufficient home equity, you may be able to get the cash you need to:
- Pay off your existing mortgage
- Pay off medical bills, vehicle loans or other debts
- Improve your monthly cash flow
- Fund necessary home repairs or renovations
- Build a “safety net” for unplanned expenses
HECM Loan Benefits
Whether you are planning on retiring soon or have already started retirement, take a moment to think about how you envision your retirement lifestyle. Even if you have planned, saved and invested carefully, you may have fewer funds than you had expected to meet your goals. Here are some of the ways a reverse mortgage may benefit you:
- Eliminates your existing monthly mortgage payments2
- You can stay in your home and maintain the title2
- Loan proceeds are not taxed as income
- Heirs inherit any remaining equity after paying off the HECM loan
- The loan is FHA insured1
To be eligible for a HECM loan, some key requirements are:
- The youngest borrower on title must be at least 62 years of age
- You must live in your home as your primary residence and have sufficient equity
- You must be able to pay off your existing mortgage using the HECM loan proceeds
- Live in a single family, two-to-four unit owner-occupied home, townhouse, approved condominium or manufactured home
- Must meet financial eligibility criteria as established by HUD
Once you obtain your HECM loan, you must continue to meet the following conditions to maintain your loan in good standing.
- Maintain your home according to FHA requirements
- Continue to pay property taxes and homeowners insurance
- Continue to own and live in your home as your primary residence
- The loan becomes due and payable if you fail to meet any of the above obligations or the last borrower or non-borrowing spouse passes away. The heirs must repay the loan in order to inherit the property. Failure to repay the loan may result in foreclosure.
1 Federal Housing Administration (FHA) mortgage insurance premiums (MIP) will accrue on your loan balance. You will be charged an initial MIP at closing. The initial MIP will be 2% of the home value not to exceed $13,593. Over the life of the loan, you will be charged an annual MIP that equals .5% of the outstanding mortgage balance.
2 Your current mortgage, if any, must be paid off using the proceeds from your HECM loan. You must still live in the home as your primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.