Reverse Mortgage AKA HECM

A reverse mortgage loan, like a traditional mortgage, allows homeowners to borrow money using their home as security for the loan. Also like a traditional mortgage, when you take out a reverse mortgage loan, the title to your home remains in your name.

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What is a reverse mortgage?

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If you’re looking for ways to supplement your retirement income or access your home equity with a Reverse Mortgage, Federal Housing Administration (FHA) insured reverse mortgage loan may be the answer.  A reverse mortgage loan allows you to access a portion of your home’s equity to obtain tax-free funds without having to make  monthly mortgage payments.  

​Retirement researchers make a new case for reverse mortgages 
A growing number of retirement researchers, such as Harold Evensky, John Salter, and Wade Pfau, have conducted numerous studies to evaluate the pros and cons of a reverse mortgage, along with its potential uses and value in retirement income distribution planning. These leading researchers have all agreed that the reverse mortgage line of credit offers particular value as a tool to improve the probability of successful client outcomes and legacy value.

HECM Line of Credit: Unique safety net offering a growth feature and flexible repayment.
Clients can establish a HECM line of credit and draw on it as needed for future expenses, such as healthcare costs.
A unique feature of the HECM line of credit is the amount available to clients will grow monthly, independent of any
change in home value. This feature can provide additional income-tax-free funds in future years, which may prove valuable as clients’ savings are depleted.

Flexible payment feature: No monthly principal and interest payments required and no pre-defined loan maturity date. The loan remains in force and does not have to be repaid until the borrowers move, pass away or sell the home,
as long as they meet their loan obligations. You can opt to pay down the loan at any time, or defer repayment. (As with any mortgage, the borrower must  meet their loan obligations, keeping current with property taxes, insurance,
maintenance and any homeowners association (HOA) fees.)​
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*While the minimum age for reverse mortgage programs start at age 62, there are proprietary reverse mortgage programs that start as young as 52 and LESS programs that are available for homeowners of any age. 

How will this work for me?

 If you’re 62 years of age or older and have sufficient home equity, you may be able to get the funds you need to:

• Pay off your existing mortgage
• Continue to live in your home and maintain the title
• Pay off medical bills, vehicle loans or other debts and improve your cash flow
• Fixed Rate and Adjustable Loan types available
• Fund necessary home repairs or renovations
• Build a “safety net” for unplanned expenses
• Sell your current home, bank most of the money and buy a new home using a reverse mortgage

What do I need to do for this to work for me?

Reverse Mortgage Eligibility
Applying for a reverse mortgage loan is simple. To be eligible for a reverse mortgage loan, some
key requirements are:

• One homeowner must be at least 62 years of age or older
• Live in your home as your primary residence and have sufficient equity
• Be able to pay off your existing mortgage through the reverse mortgage loan proceeds
• Live in a single family home, two-to-four unit, owner-occupied home, townhouse, approved condominium or some manufactured home
• Must meet financial eligibility criteria as established by HUD

Requirements
In addition to the eligibility requirements, you must also meet the following conditions to obtain
a reverse mortgage loan:

• Complete a HUD approved counseling session
• Maintain your home according to FHA requirements
• Continue to pay property taxes and homeowners insurance
• You must still live in the home as your primary residence, continue to pay required property taxes, homeowners insurance and maintain the home according to Federal Housing Administration requirements.
• Your current mortgage, if any, must be paid off before obtaining any funds from a HECM loan; you can use proceeds from the HECM loan for this purpose. - Not applicable to HECM for Purchase
• If your home needs repairs to be eligible for a HECM loan, you may be able to use the proceeds of the loan to accomplish this.

How does a reverse mortgage work?

How a HECM Loan Works

We offer FHA insured HECMs; a safe, secure loan that lets you access your home’s equity to get cash for your retirement funding needs. We also offer safe Jumbo-Reverse loans from $500,000 to $6 million dollars. (Finally we have LESS plans from $25,000 to $500,000 that have no age requirements. This program can use your primary residence, a vacation home or residential investment property as collateral. Click on LESS above to read about how these work.)

The amount you receive is based on current interest rates, the age of the youngest borrower and the lesser of the appraised value of your home, sale price or the maximum lending limit. The funds available to you may be restricted for the first 12 months after loan closing, due to HECM requirements.

​In general, the older you are, the more equity you have in your home. Also the lower your mortgage loan balance; the more money you can expect from a HECM loan.
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Receiving Your Money
The HECM is available as either an adjustable or fixed-rate loan. With the adjustable rate, the rate is adjusted monthly based on the  CMT (Constant Maturity Treasury) as of February 1, 2021. The industry no longer uses the LIBOR (London Inter Bank Offered Rate) as a benchmark.

The fixed-rate HECM maintains the same interest rate over the life of the loan. You may need to set aside additional funds from loan proceeds to pay for property taxes and insurance.

Repaying the Loan
Loan repayment is not due as long as you meet the loan obligations. This includes living in the home as your primary residence, continue to pay required ​property taxes and insurance, and maintain the home according to FHA requirements. Unless there is a co-borrower living in the home, you must typically repay the loan when you no longer live in the home.

You or your heirs will not be required to pay more than the value of your home at the time the loan is repaid. Even if your loan balance exceeds the value of your home, provided you or your heirs decide to sell the home. Best of all, any remaining equity goes to you or your heirs once the loan is repaid.

If your heirs want to keep your home after you and your spouse pass away, they will have to repay either the full loan balance or 95 percent of the home’s appraised value – whichever is less. Prepare any non-borrowing family members living in the home by deciding together what they will do after you pass away.​

Your reverse mortgage responsibilities
Although you do not make monthly mortgage payments with a reverse mortgage, there are three main requirements you must meet. Reverse mortgage loan details:

• Your home must be your principal (meaning primary) residence. Your home must be your principal residence, meaning it must be where you spend the majority of the year. You can only have one principal residence at a time.
• You must pay your property charges, like property taxes and homeowners insurance, on time.  This also includes flood insurance premiums, HOA fees, land rent if they apply to your situation.
• You must keep your home in good condition. The lender will evaluated whether your home met HUD‘s property requirements by ordering an appraisal. Once the reverse mortgage loan is in place, you must keep your home in good condition. Your lender or servicer may inspect your home’s condition if they give you notice and specify the purpose of the inspection. They also may tell you to make repairs. 

Caution: Failure to meet these requirements may lead to default or foreclosure.

Your right to cancel a reverse mortgage:
In the majority of cases involving reverse mortgages, you will have three business days following the closing of the loan to cancel the arrangement without incurring any fees or other consequences. This is referred to as "rescission," which is your legal right.

In order to cancel, you are required to give the lender written notice. Send your letter by certified mail and ask for a return receipt so that you have record of the date you sent the notice of cancellation and the date the lender received it. Always be sure to keep a copy of any correspondence that you have with your lender. If you decide to cancel the reverse mortgage loan, the lender has twenty days to repay any money you've already contributed toward the financing of the home equity loan.

​If you believe that there is a reason to cancel the loan beyond the initial three-day period, you should seek the assistance of a lawyer in order to determine whether or not you have the right to cancel the loan.

Note: This information only applies to Home Equity Conversion Mortgages (HECMs), which are the most common type of reverse mortgage loan.
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