If you are considering a reverse mortgage you have two options to choose from, the HECM Saver Program and the HECM Standard Program. So how do you know which program is right for you? Below is some helpful information about the HECM Standard Program that can you decide if the Standard is right for you.
The Home Equity Conversion Mortgage (HECM) is the Federal Housing Administration’s (FHA), Reverse Mortgage. A reverse mortgage is a financial tool that allows people over 62 who own their home to access the equity they have built up in their home. It eliminates any current mortgage* by repaying the mortgage back with the proceeds of the reverse mortgage and gives the borrower the remaining cash to be used any way they want.
The HECM Standard is perfect for you if you are looking to pay off a big debt like your mortgage, credit card bills or remodeling your home. If you do not have a mortgage on your home you can still receive a reverse mortgage, it just means you will be able to access more cash to use any way you want.
With HECM Standard loans 2 percent of the upfront mortgage insurance premium is paid based on the appraised value of the property. The ongoing premiums are 1.25 percent of the outstanding balance.
The HECM Standard is a perfect for you if you are looking to pay off a big debt like a mortgage, credit card bills or remodeling your home. If you are in need of a large lump sum of cash, the HECM Standard is the option for you. If you are not looking for that much cash the HECM Saver could be better for you.
Once you decide on the HECM Standard program you need to decide on your rate. Your rate will determine how you will receive your cash.
The HECM Standard has two options when it comes to the rate. You choose to have a Fixed Rate or an Adjustable Rate. Each rate has different benefits depending on your lifestyle and your needs. Regardless of which rate you choose, the interest charge on a reverse mortgage loan is deferred which means there is no payment of interest until the loan is paid off.
The Fixed Rate simply means that for the life of the loan the rate will be at a fixed number. That number is determined by the LIBOR index. With a fixed rate you have to receive your cash in a lump sum. Your interest will start accruing on the day full amount of the loan from the very first day you receive your cash.
If you want to receive your cash in monthly payments or in a line of credit you will have an Adjustable Rate. With the Adjustable Rate the rate changes monthly with the market. While that can scare people away from the reverse mortgage program, remember that the reverse mortgages offered by One Reverse Mortgage are FHA-insured.
Payment Options With the HECM Standard Program
With the HECM Standard program you can choose to have a fixed rate or adjustable rate. Depending on which rate you choose will determine what payment option you can choose from.
If you choose the HECM Standard with a fixed rate your payment option will be a lump sum. You cannot choose a combination of payments, a line of credit or monthly payments. You’re only option is a lump sum. This is a good option for someone who is looking to do something that costs a lot of money such as home improvements, pay of a big debt or take care of college for the grandkids.
If you choose the HECM Standard with an adjustable rate you are able to choose your payment method. Your options are a lump sum, line of credit, monthly payments or a combination of any of these.
Benefits of the Reverse Mortgage Program
With a reverse mortgage there are currently no income or credit requirements. You are not required to make any more monthly mortgage payments* and you still own your home. You can have the peace of mind of knowing you can stay in your home for the rest of your life. This program is insured by the Federal Government so you know the program is safe and secure. The reverse mortgage program also does not affect your Social Security. However, if you are on Medicaid, any reverse mortgage proceeds that you receive must be used immediately. We recommend that you consult your financial advisor to get a complete understanding of a reverse mortgage and your benefits.
Kristen Curzytek is a writer for Retiring Wise. Give us a call at (800)401-8114 to talk to one of our licensed professionals. They can discuss your financial situation with you and determine if a reverse mortgage makes sense for you and your financial goals.
*Homeowner is still responsible for taxes, insurance and property maintenance.