Frequently Asked Questions
Please Note
There are many nuances involved with a Home Equity Conversion Mortgage and Reverse Mortgage products. The answers supplied on this website are in general terms and are here to provide a basic understanding to the concepts. This information is by no means binding. For further knowledge on a specific scenario or topic, please reach out to us below - we take great pleasure in educating everyone.
What is a Home Equity Conversion Mortgage?
A HECM is a loan secured by a home... more
What is a Home Equity Conversion Mortgage?
In it's most basic sense, a Home Equity Conversion Mortgage is a personal loan, secured by a home, where repayment is deferred to a later date - generally when the home sells or when the last borrower passes. The Home Equity Conversion Mortgage, or HECM, is regulated by the U.S. Department of Housing and Urban Development (HUD) and insured by the Federal Housing Administration (FHA) a division of HUD. Because of this involvement, lenders can offer these loans with generous financing terms.
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A Home Equity Conversion Mortgage, is the safest FHA-guaranteed version of a reverse mortgage, a loan for seniors aged 62 or older that allows them to convert a portion of their home equity into cash without selling their home.
A HECM is similar to a conventional home loan, in which it is the first lien on the property, making it merely a loan that has a very unusual repayment program. Because of the FHA's involvement in the loan they provide important guarantees. "The first is they back up the lender guarantee that no payments are required until after you permanently move out of the house. The second guarantee means that only home equity is responsible for the loan – not you, your heirs, your estate, your trust, or any other asset you own. Only the house equity is responsible for paying the loan back, and if the home equity isn’t enough money at the end, then the FHA mortgage insurance comes into play to assist with the difference - not the heirs." - Accola, Harlan J. Home Equity and Reverse Mortgages. Better Way to Live,Inc., A, 2018. (accola4@gmail.com)
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Overall, a home equity conversion mortgage can be a useful financial tool for seniors who want to tap into their home equity to supplement their retirement income or pay for unexpected expenses.
Can you give me an example of a HECM in use?
One success story of using a Home Equity... more
Can you give me an example of a HECM in use?
One success story of using a Home Equity Conversion Mortgage is that of a retired couple - John and Mary from Caldwell, Idaho - who found themselves struggling to make ends meet with their fixed retirement income. They had always lived within their means and had saved for their retirement, but unexpected health expenses and rising costs of living had eaten away at their savings.
As they looked for solutions, they came across the concept of a reverse mortgage. After researching the topic and consulting with a financial advisor, who thought that a reverse mortgage may be just the right solution, who referred them to Stephen Wright to review their situation. They decided to proceed with a reverse mortgage on their home.
With a HECM reverse mortgage, they were able to access the equity in their home without having to sell it or move out. They received a lump sum payment upfront and were also given the option to receive monthly payments or a line of credit that they could draw from as needed.
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John and Mary were able to use the funds from the HECM reverse mortgage to pay off their outstanding debts, cover their daily expenses, and even take a vacation they had always dreamed of. They also set aside some of the funds to cover any future unexpected expenses.
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Thanks to the HECM reverse mortgage, John and Mary were able to live more comfortably and with less financial stress. They were able to stay in their home and maintain their independence, while also enjoying their retirement years.
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In the end, John and Mary were thrilled with their decision to use a Home Equity Conversion Mortgage. It gave them the financial freedom they needed and allowed them to enjoy their retirement without constantly worrying about money.
Are Home Equity Conversion Mortgages safe?
HECMs can be a safe financial product for seniors... more
Are Home Equity Conversion Mortgages safe?
Home Equity Conversion Mortgages (HECMs) are a safe financial product for seniors, but it is important to understand the obligations associated with them before deciding to get one. Here are some of the key things to keep in mind:
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FHA-insured: HECMs are insured by the Federal Housing Administration (FHA), which means that if the lender goes out of business or is unable to make payments to you, the FHA will step in and make sure you continue to receive payments. This provides a significant level of protection for borrowers.
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Non-recourse loan: HECMs are "non-recourse" loans, which means that you will never owe more than the value of your home, even if the loan balance exceeds the value of the property when it is sold.
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Counseling required: Before you can get a HECM, you are required to undergo counseling to help you understand the risks and benefits of the product, and to ensure that you are making an informed decision.
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Borrower's Responsibilities: Borrowers must continue paying property taxes, insurance, and maintenance costs on their home.
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Regulated by the government: HECMs are heavily regulated by the government, which helps to ensure that lenders are following ethical and legal practices, and that borrowers are protected from fraud and abuse.
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Overall, HECMs are a safe financial product for seniors who are looking to tap into the equity in their homes. However, it is important to work with a reputable lender who has experience with HECMs to ensure all your questions can be answered correctly and to your understanding.
Does the bank own my home after getting a HECM?
No, the bank does not own your home... more
Does the bank own my home after getting a HECM?
No, the bank does not own your home if you have a Home Equity Conversion Mortgage (HECM). You remain the owner of your home by keeping the title to your property, retaining the right to live in the home for life and use the equity as you see fit.
*As with all loans there are terms and conditions. As long as loan terms are met repayment of the loan cannot be called due. Loan terms include paying property taxes, insurance, and maintenance costs on your home.
What if my spouse passes away?
The non-borrowing spouse will not be forced to leave... more
What if my spouse passes away?
When a reverse mortgage is generated for two people and they are both over 62 years of age, they are usually both listed on the loan. This means that if one spouse passes away, the surviving spouse will still receive all the benefits and protections of the reverse mortgage, and the loan will continue as normal.
However, if the borrower is married and their spouse is not a co-borrower on the loan, even if they are younger than 62 years of age, the spouse may still be able to remain in the home after the borrower has passed away or moved out permanently. This is known as the Non-Borrowing Spouse (NBS) protection, which was established by the Department of Housing and Urban Development (HUD) in 2014.
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The NBS protection ensures that the non-borrowing spouse will not be forced to leave the home or be required to repay the loan balance immediately after the borrower has passed away or moved out permanently. The Non-Borrowing Spouse will still need to maintain the loan terms.
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*Please be sure to talk to a Reverse Mortgage Specialist before proceeding on a loan with a non-borrowing spouse as to be in full understanding of the protections.
Will my children inherit any debt?
No, a borrower's heir will never inherit any debt from... more
Will my children inherit any debt?
No, a borrower's heirs will never inherit any debt from a reverse mortgage.
When the last borrower or the non-borrowing spouse of a HECM reverse mortgage loan passes away or moves out permanently, the loan balance becomes due. However, HECM reverse mortgage loans are non-recourse loans, meaning that the borrower or their heirs are not personally liable for any debt from the reverse mortgage. If the home is sold for less than the outstanding loan balance, the borrower or their heirs are not responsible for any shortfall because the loan is insured by the Federal Housing Administration (FHA). In other words, if the sale of the home does not generate enough proceeds to pay off the outstanding loan balance, the FHA insurance fund (MIP) will cover the difference.
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When a maturity event occurs and the loan balance becomes due, typically following the passing of the final borrower on the reverse mortgage loan, the borrower's heirs have several options. They can choose to repay the loan balance and retain ownership of the home by refinancing the loan or using their own funds to pay it off. Alternatively, they can sell the home and use the proceeds to pay off the loan, or they can allow the lender to sell the home to repay the loan balance, with any remaining proceeds going to the heirs.
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*Important, any sale proceeds left after repayment of the loan are property of the borrower or their heirs.
How does the Mortgage Insurance Premium work?
HECMs can be a safe financial product for seniors... more
How does the Mortgage Insurance Premium work?
The Mortgage Insurance Premium (MIP) for Home Equity Conversion Mortgages not only protects the lender but also protects you and your children from having to repay more than the value of the home when the loan is due.
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The Mortgage Insurance Premium (MIP) for a HECM reverse mortgage is always 2% of the appraised value of the home, up to the FHA's lending limit for 2023 of $1,089,300. This premium is included in the loan amount at the time of closing and is based on the borrower's eligible HECM loan amount. In addition, there is an annual MIP that equals 0.5% of the outstanding loan balance, which is also included in the loan on a monthly basis throughout the loan's duration. The MIP helps ensure the financial stability of the HECM program and enables it to continue serving future borrowers.
*The MIP is financed into the loan, there are no monthly mortgage payments required by a borrower on a HECM reverse mortgage.
What are the costs related to obtaining a HECM?
The costs associated at origination for a... more
What are the costs related to obtaining a HECM?
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The costs associated with origination for a reverse mortgage or a Home Equity Conversion Mortgage (HECM) are federally regulated and many are financed into the loan. These costs are comparable to the costs of a traditional FHA mortgage and some of the figures can be adjusted depending on the lender and loan specifics.
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Costs associated with obtaining a reverse mortgage or a HECM
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Mortgage Insurance Premium (MIP): This is an insurance premium that can be financed into the loan at closing. This is a pivotal protection and cornerstone of the HECM loan. For more information see the previous FAQ above.
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Origination fee: The HECM origination fee is up to 2% of the first $200,000 and 1% thereafter of the maximum claim amount subject to a minimum origination fee of $2,000 and a maximum origination fee of $6,000. 100% of the origination fee is allowed to be financed into the loan.
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Third-party closing costs: These include fees for items such as; title search, title insurance, recording fees, notary fees and taxes.
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Counseling: Borrowers are required to undergo counseling from a HUD-approved counselor before obtaining a HECM loan. Counseling is paid by the borrower prior to commencing the loan origination process.
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Appraisal: The appraisal is required to determine the current market value of the home, which is used to calculate the maximum loan amount that the borrower can receive. The appraisal is typically paid by the borrower and is not financed into the loan.
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