Best known as Home Equity Conversion Mortgages (HECM), this home loan option expands the opportunity for increasing retirement income for those 62 years of age and older who have enough equity in their primary home of residence.
First signed into law in 1988 by President Ronald Regan, the reverse mortgage has been through numerous federally-mandated changes since then and now offers senior citizens a secure means of accessing the equity in their home without having to sell the home or pay the loan back. The Consumer Financial Protection Bureau describes the HECM as, “A special type of home loan for older homeowners that requires no monthly mortgage payments.” Those monthly payments are actually deferred until the homeowner dies, or decides to sell and move out of the home. Borrowers are still responsible for the payment of utilities, homeowner’s insurance and property taxes.
The Federal Housing Administration (FHA) provides a substantial safety net of insurance for Home Equity Conversion Mortgages, ensuring borrowers a guarantee on their loan terms even if the loan balance exceeds the value of the home or if the lender experiences financial difficulty, according to the Consumer Financial Protection Bureau.
Recent changes in the HECM program in the fall of 2017 aim to ensure the long term sustainability of this financial resource for seniors, according to the Department of Housing and Urban Development Secretary Dr. Ben Carson. Subsequently, a mortgage insurance premium fee of 2 percent of the maximum loan value is charged upfront (payable at closing and financed into the loan—not required out of pocket). Additionally, the monthly mortgage insurance fee has been lowered to .05 percent of the outstanding loan balance.
The primary benefit of an HECM is freedom from a monthly mortgage payment. Instead seniors and/or retirees can use that money without restriction for other needs or life-enhancing activities during their latter years.
A commonly expressed concern regarding HECMs is how potential heirs to the property will be affected, including a surviving spouse. If a surviving spouse is listed as a borrower on the loan, there will be no change. In the event of other non-resident heirs, the loan must be paid off within 6 months of the death of the last borrower. Heirs may choose to sell the property, keep the property or turn the home over to the lender. According to industry experts, this decision is usually determined by the amount of equity remaining in the property.
Call our mortgage experts at A Plus Mortgage to discuss your individual situation and gain more insight to the Home Equity Conversion Mortgage option and whether it makes sense for you or your loved ones.
- Consumer Financial Protection Bureau: Reverse Mortgages Report to Congress (June 28, 2012); http://files.consumerfinance.gov/a/assets/documents/201206_cfpb_Reverse_Mortgage_Report.pdf
- Kiplinger: What Heirs Need to Know About Reverse Mortgages (March 2014); https://www.kiplinger.com/article/retirement/T021-C000-S004-what-heirs-need-to-know-about-reverse-mortgages.html
- Market Watch: Read this before getting a Reverse Mortgage (Aug 31, 2017);https://www.marketwatch.com/story/read-this-before-getting-a-reverse-mortgage-2017-08-31
- U.S. Department of Housing and Urban Development: Frequently Asked Questions about HUD’s Reverse Mortgage; https://www.hud.gov/program_offices/housing/sfh/hecm/rmtopten
- U.S. Department of Housing and Urban Development: Mortgagee Letter 2017-12; https://www.hud.gov/sites/documents/17-12ML.PDF