What is a HECM reverse mortgage?
Home Equity Conversion Mortgages (HECMs), also known as reverse mortgages, are powerful financial tools designed to help older Americans live more comfortably in retirement. Designed for Americans aged 62 and older, reverse mortgages allow a senior homeowner to turn a portion of the equity in his or her home into a tax-free income stream.
Reverse mortgage loans are insured by the Federal Housing Administration (FHA) and can help senior citizens supplement other sources of income for their retirement years.
Understanding the process
When you get a reverse mortgage, you are taking out a mortgage loan on your home. However, unlike a traditional mortgage where you make regular payments of principal and interest to your mortgage lenders, you don’t have to make any payments on a reverse mortgage during your lifetime. Your lender pays you a tax-free sum of money on a regular basis instead. The amount you will receive will depend on current interest rates when you take out the reverse mortgage, the age of the youngest borrower, and the appraised value of your home.
You can use the funds you receive from your reverse mortgage to pay your regular monthly expenses, to pay off debt, to make improvements to your home, to travel, or for any other reason. You get to continue to live in your home and retain ownership rights during the loan period.
When all of the named borrowers have died or otherwise left the home, the payments from the mortgage lender cease and the total balance due is repaid.
Why consider taking out a HECM reverse mortgage?
There are several key advantages and benefits of taking out a reverse mortgage. Some of the most common reasons seniors consider reverse mortgages include the following:
- No monthly mortgage payments: HECM loans are paid back when a homeowner leaves the house, so there’s no monthly payment. This can free up money in your monthly budget to use for other expenses.
- Tax-free: Since this is a loan and not income, HECM borrowers don’t pay taxes on the money they get from the HECM loan. That means the money you receive will go farther.
- Homeowners can stay in the home: HECM loans are a great way to use the cash invested in a home over years of home ownership, without having to sell the home.
- FHA insured: HECM loans are insured by the Federal Housing Authority. If the home’s value falls, FHA insurance means that borrower never owes more than value of the loan, even if the loan balance is higher than the equity in the home.
If you would like to explore a HECM reverse mortgage or other mortgage products available from Capital Mortgage Advisors, please call us at 800-859-5648, or complete our simple form below. One of our experienced mortgage specialists will contact you.