The market crash of 2008 saw a number of homeowners going underwater on their homes. For the first time in a long time, people owed more on their homes than the homes were worth. While the housing market has rebuilt and remains strong today, 2008 is still in the minds of many. It’s understandable that homeowners worry about their home going underwater. But this is where the home equity conversion mortgage (HECM), the government-insured reverse mortgage, really stands out.
HECMs are Non-Recourse Loans
One of the biggest advantages of the HECM is that it can protect you from declining housing markets. The HECM is a non-recourse loan. That means you will never owe more than your home is worth. If your home sells for less than what is owed on your loan, your FHA insurance will cover the difference. You will not be responsible for paying that difference; nor will your heirs.
The HECM Line of Credit Can Grow
Another advantage of the reverse mortgage is that your proceeds can actually grow in value even when home values drop. If you get a reverse mortgage line of credit, the available funds in your line will grow in value over time. It continues to grow despite market fluctuations because it is not dependent on those factors. It grows with the interest rate of the loan.
So What if Your Home Goes Underwater?
That’s the beauty of having a government-insured reverse mortgage. Technically, it won’t go underwater. According to Investopedia, that term is used to describe a situation in which the mortgage has a higher principal than the free-market value of the home. With a reverse mortgage, you will never owe more than your home is worth.
Other HECM Benefits
There are a number of other benefits of having a HECM. For one, you remain the owner of your home and there is no required monthly payment. You just need to stay current on your property taxes and homeowners insurance and maintain your home to avoid foreclosure. They HECM can also be a flexible financial option. In fact, there are a few HECM options that allow you to receive your proceeds in different ways. You can choose to receive proceeds in a line of credit, monthly payments, a lump sum payment, or any combination of the three. You can also use your proceeds to purchase a new home.
To discover even more benefits or to learn more about how the HECM can protect you from declining home values, call One Reverse licensed specialist who can fill you in on all the details.