HECM refers to a reverse mortgage insured by HUD and the FHA. All of the reverse mortgages issued in 2009 and 99% of all volume in 2008 were HECMs. The FHA’s HECM program contains special requirements like HUD counseling and a property value ceiling. The HECM property value ceiling is currently at $625K. This means that if the home is appraised for more, the loan amount will be based on the $625K value.
If you are struggling to make ends meet, are 62 years or older and have significant equity in your home, you may be eligible for a Home Equity Conversion Mortgage (HECM) loan, commonly known as a reverse mortgage. The HECM program is insured by the Federal Housing Administration (FHA) and allows seniors to access a portion of the equity that they have built up in their home. The funds accessed through a HECM can be used however the borrower chooses, from paying off medical bills to updating their home.
HECMs can be helpful financial tools for those who are eligible. In addition to being at least 62 years old, some key requirements include:
- Owning the property outright, or at least having paid off a considerable amount of your mortgage
- Occupying the home as your primary residence
- Not being delinquent on any federal debt
- Attending a session with a HUD-approved HECM counselor
The amount of funds available, also known as the Principal Limit, from a HECM loan is determined by:
- Age of the youngest borrower
- Current interest rates
- Balance of your existing mortgage, if applicable, and all mandatory obligations as defined by the HECM requirements
- The lesser of the appraised value of your home, sale price or the FHA maximum lending limit
The funds available to you may be restricted for the first 12 months after loan closing, due to HECM requirements.
With a fixed rate HECM loan, you can receive the cash in a lump sum. With an adjustable rate HECM loan, you can choose from the following disbursement options:
Tenure– Equal monthly payments that will continue as long as at least one borrower continues to occupy the property as their primary residence.
Term– Equal monthly payments that continue for a specified number of months.
Line of Credit– Unscheduled payments at times and in amounts specified by the borrower available until the line of credit is depleted.
Modified Tenure– A combination of a line of credit and scheduled monthly payments as long as at least one borrower continues to occupy the property as their primary residence.
Modified Term– A combination of a line of credit and scheduled monthly payments for a specified number of months.
Single Disbursement Lump Sum– One payment at the closing of the loan.
Borrowers may access 60% of the principal limit amount or all mandatory obligations (whichever is greater), as defined by the HECM requirements, plus an additional 10% during the first 12 months after loan closing. The combined total of mandatory obligations plus 10% cannot exceed the principal limit amount established at loan closing.
As with most loans, there are fees associated with the loan that borrowers should be aware of. These fees include:
- Initial and ongoing mortgage insurance premium (MIP)
- Origination fee
- Third party charges
- Interest which accrues over the life of the loan
- Servicing fees
A majority of the fees can be financed as part of the loan.
Home Equity Conversion Mortgages are on the rise. The rate of new HECMs increased by 15.3% in 2013 to a total of 61,122 for the year1. If you or someone you know may benefit from a HECM, call 800-966-7211 for more information and to see if you meet the eligibility requirements. A HECM may help you live more comfortably in the safety and security of your own home for many years to come.