A home equity conversion mortgage (HECM) is a type of reverse mortgage loan that is offered by the Federal Housing Administration (FHA).
The HECM is a loan that offers elderly borrowers the chance to take out a loan based off the equity they have acquired in their home. This loan will not be required to be paid back in full until either the homeowner decides to sell their property or they pass away. The guidelines set forth by the FHA state that the borrower cannot be kicked out of their home. If at the time the borrower passes away the amount owed on the mortgage is higher than the current value of the property, the FHA will be responsible to make up the loss.
The FHA strongly encourages any homeowner who is contemplating whether or not to apply for a HECM to first make an appointment for a counseling session with a HUD or FHA certified counselor. According to the FHA, it is very important for homeonwers to take the time to learn exactly what the implications are that come along with this loan. If you are considering a reverse mortgage you can arrange an appointment to meet with a certified counselor by visiting the Department of Housing and Urban Development’s website.
Here HUD explains the payment options for this loan:
* Tenure – equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
* Term – equal monthly payments for a fixed period of months selected.
* Line of Credit – unscheduled payments or installments, at times and in amounts of your choosing until the line of credit is exhausted.
* Modified Tenure – combination of line of credit with monthly payments for as long as you remain in the home.
* Modified Term – combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.
There are not too many requirements to qualify for this type of mortgage. Other than the optional HUD counseling meeting, the FHA requirements for this reverse mortgage are that the borrower is at least 62 years old, they reside in the property as their primary residence, and that the property can be paid off or is paid off through with proceeds from the loan.
The amount a borrower can get from a HECM will be based off the lesser of the appraised value of the property or FHA limits in the area, current interest rates, and the current age of the homeowner. Typically, the older the borrower is and the more value the home has, the more they can borrow.
As with most traditional mortgages, the home equity conversion mortgage is provided by approved lenders under the specific regulations of the Federal Housing Administration. Reverse mortgages are insured by the FHA, as with a regular home loan you are able to shop around for the best deal possible. Since these loan typically come with confusing terms and guidelines it is always best to consult with your HUD counselor.
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