A Home Equity Conversion Mortgage is a Federal Housing Administration (FHA) insured mortgage. Home equity conversion mortgages allow seniors (borrowers must be at least 62 years old) to convert the equity in their home to cash. Interest accrues on the outstanding loan balance, but no payments must be made until the home is sold or the borrower(s) die, at which point the loan is paid back entirely.
Reasons to choose HECM
Less financial strain and more cash flow
- Stay in your home
- Money can be used for any purpose, such as paying down debt, medical bills, home repairs, improve lifestyle or starting a new business
Borrowers with poor credit don’t pay higher interest rates than those with good credit
Home goes to your heirs. Your heirs can choose to pay off the HECM mortgage or sell the home, any money left over will go to your heirs.
- Never owe more than your home is worth
- Buy an investment property or vacation home
- Maintain current lifestyle
- 62 years of age or older
- Own the property outright or have a small mortgage balance (equity)
- Occupy the property as principal residence
- Reverse Mortgage Counseling
- No delinquency on any federal debt
- Participate in a consumer information session given by an approved HECM counselor
HECM Loans Pros & Cons
Income for as long as you live
You’ll keep receiving payments, even if your loan balance exceeds your home’s value. You don’t outlive your loan.
Never owe more than your home is worth
If your loan balance grows larger than the property value, gov’t mortgage insurance covers the difference, not you and not your family!
Less expensive than selling your home
Selling your home usually comes with real estate commissions, moving costs, etc… which subtracts from your profits. Instead stay in your home and utilize your equity.
Easy loan approval
Poor credit and low income will not prevent you from getting a HECM loan.
Pursue your dreams
If you’re not struggling with money but you want to explore or start a new business, HECMs can give you the opportunity to make those dreams come true.
Loss of home equity
With no monthly payments, HECMs mortgage balances grow over time which eats into your home equity.
Partial loss or loss of inheritance
This can cause conflict in some families because heirs don’t like the idea of possibly losing the equity in the home or having to sell the home.
Must be your primary residences and must maintain the property. Responsible to pay homeowners insurance and taxes (not included in HECM).
Mortgage insurance premium
There is a one-time premium that ranges between 0.5% – 2.5% of the appraised value of the home.