10 HECM Facts

A reverse mortgage is a unique refinancing option that is available exclusively for homeowners who are 62 and older. Are you interested in getting a reverse mortgage? When trying to determine if you should move forward with this loan, having the right information is key. We’re here to make sure you get your questions answered. These 10 reverse mortgage facts can help you feel more confident when deciding if this loan is right for you.

The Reverse Mortgage is a Loan

The reverse mortgage is a type of loan for homeowners who are 62 and older who wish to access a portion of their equity. The amount of money available to the borrower is determined by the home’s value, current interest rates, and the age of the youngest borrower or non-borrowing spouse. As with any other loan, it does need to be paid back at some point. You can sell the home or pay the loan off with no prepayment penalty.

You and Your Family Have Options

If you pass away or move out of the home, you and your family have a few options when it comes to paying off the loan.

  1. You can put the house up for sale. The proceeds from the sale will first pay off the loan balance, and any remaining money is yours to keep.
  2. Heirs can purchase the home if it’s something they want to live in, use, keep in the family, or hold as the value appreciates. To purchase the home, they will only need to pay the loan balance or 95% of the appraised value – whichever is less.
  3. If you or your heirs want nothing to do with the home, you can sign the deed over to the lender and simply walk away from the home.

People Take Out a Reverse Mortgage for Immediate or Future Goals

Some people take out a reverse mortgage to pay down, eliminate, or consolidate their existing mortgages, home equity loans, and other debts. Others use their proceeds to create an emergency fund, defer drawing on other assets, or increase their borrowing power by leaving available funds in a line of credit to grow in value over time.

There Are Different Types of Reverse Mortgages

1) Single-Purpose Reverse Mortgage:

  • Offered by local, state, and non-profit agencies
  • Must be used for a state-specific purpose

2) Home Equity Conversion Mortgage (HECM):

  • Federally insured
  • Before approved must go through a counseling session
  • Offered at One Reverse Mortgage

3) Proprietary Reverse Mortgage:

  • Available to those who have homes that appraise at a high value
  • Not insured by the government

HECMs Have Grown in Popularity

The first federally-insured reverse mortgage (or HECM) was issued in 1989. One year later, in 1990, 157 HECMs were made, according to NRMLA. And at the end of 2017, more than 55,000 HECMs were created. Since the reverse mortgage became a federally-insured loan, more than one million HECMs have been created.

There’s a Financial Assessment

Before you receive your HECM, you must go through a financial assessment. This assessment will look at your income and credit history to ensure you are willing and able to uphold the financial responsibilities of the loan. Credit score is still not a requirement at this time. Based on the results of this assessment, some of the loan’s proceeds may be set aside to pay for property taxes and homeowners insurance.

You still Own Your Home

When you get a reverse mortgage, you do not sign your home over to the lender. You remain the owner of your home. Your name remains on the title.

There are Five Payout Options

Unlike other loans, the reverse mortgage offers a few different ways to receive your proceeds. In fact, depending on which HECM product you choose, there can be a total of five different payout options. You can choose to receive your funds in one lump sum, monthly term or tenure payments, in a line of credit, or any combination of these options.

Reverse Mortgage Proceed Values Are Different for Everyone

The amount of proceeds you can receive from your home varies from person to person and depends on a number of different factors. These factors may include your age, your home’s value, your financial goals, and if you have an existing mortgage on the home.

You Can Use the Proceeds for Anything

The money from a reverse mortgage can be used for anything. We recommend looking at your financial and retirement goals and speaking to your financial advisor to create the best plan for using your reverse mortgage.