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REVERSE MORTGAGE DEFINITION
What is a HECM (Reverse Mortgage) loan?
HECM stands for Home Equity Conversion Mortgage. A HECM is the FHA insured reverse mortgage that allows qualified homeowners 62 and older to monetize and access part of the equity in their home. Home equity can be accessed in a number of ways and enables greater cash flow to the borrower. Imagine living in your home without a traditional monthly mortgage payment¹, or instead, enjoying monthly loan proceeds from the years you’ve invested in your home.
After you get a reverse mortgage on your primary residence, repayment is not due until the home is sold, the last borrower passes away, permanently leaves the home, or does not comply with the loan terms. Borrowers also must keep the home in good condition, pay property taxes, and keep homeowner’s insurance coverage to avoid the loan becoming due and payable. For HECM guidelines
please view our reverse mortgages page.
*Borrowers must continue to pay property taxes, homeowner’s insurance, and home maintenance costs.
WHO QUALIFIES FOR A HECM REVERSE MORTGAGE?
For an FHA HECM - reverse mortgage loan - here are the basic qualification requirements:
Both borrowers be signators to the Reverse Mortgage Loan and both must be a minimum of 62 years old at the time of closing (unless borrowers live in Oklahoma or Tennessee - where only one borrower is required as a signator to the Reverse Mortgage loan) .
The Borrowers must maintain the home as their primary residence and live in it a minimum of 6 months out of every year
Borrower's must meet a financial assessment to determine their financial capacity and willingness to adhere to the loan obligations, such as maintaining insurance and paying property taxes.
For a Reverse Mortgage Refinance, there needs to generally be enough equity available to be monitized through the Reverse Mortgage so as to make the loan financial beneficial.
HOW DO BORROWERS ACCESS PROCEEDS OF A REVERSE MORTGAGE?
The most important feature of a HECM (Home Equity Conversion Mortgage) is the ability for the homeowner (borrower) to incorporate housing wealth into their retirement strategy. This is done by allowing the borrower to monitize a portion of their housing equity into an accessible form of usable currency or cash. Homeowners utilizing a HECM or Reverse Mortgage can access their monitized housing equity in the form of
(1) cash available at closing*
(2) Line of Credit accessible following closing.**
(3) A Term Payment - a specific-amount monthly payment to the homeowner (borrower) over a predetermined and fixed amount of time. *** or
(4) A Tenure Payment - A specific-amount monthly payment to the homeowner (borrower) over the remainder of their lives (in accordance with the loan specifications) for as long as one of the borrowers lives in the home as a principal residence. ****
OTHER IMPORTANT FEATURES OF A REVERSE MORTGAGE
Homeowners utilizing a Reverse mortgage, retain ownership and title to their home much in the same way homeowners with conventional mortgages do. With a reverse mortgage, the loan is secured first by the value of the home, and secondly, by FHA mortgage insurance. HECM Loans are insured by the Federal Housing Administration (FHA). FHA requires a Mortgage Insurance Premium (MIP) to be collected at closing and during the life of the loan. These premiums are charged to the borrower's loan balance. The upfront Mortgage Insurance Premium (MIP) is calculated using the home's appraised value or a maximum of $1,089,300 (the 2023 national HECM limit). The ongoing FHA insurance premiums are calculated using each month's outstanding loan balance. This assures homeowners and their heirs that they can never inherit a debt from a Reverse mortgage.
*Borrowers may access up to 60% of the available Principal Limit of a Reverse Mortgage at closing. The remaining 40% of the available Principal Limit of their Reverse Mortgage may be accessed after one year.
**Borrowers may establish a Line of Credit in the amount of the available Principal Limit. This Line of Credit may be accessed at anytime by the borrower (once the Servicing Agent for the Reverse Mortgage has been established). The Line of Credit of a Reverse Mortgage includes a growth feature, whereby the Principal Limit and available proceeds of the Reverse Mortgage will grow at a rate of 1/2% greater than the interest rate of the Reverse Mortgage.
***In a Term payment plan, homeowners (borrowers) will receive equal payments for a set period of time that they choose, based on the amount of available principal limit.
****In a Tenure payment plan, homeowners (borrowers) will receive equal monthly payments as long as at least one borrower lives in the home as a principal residence. Monthly payments are calculated under the assumption that at least one of the borrowers will live to be age 100.
¹This advertisement does not constitute financial advice. Please consult a financial advisor regarding your specific situation. There are some circumstances that will cause the loan to mature and the balance to become due and payable. Borrowers are still responsible for paying property taxes, homeowner’s insurance and maintaining the property to HUD standards. Failure to do so could make the loan due and payable. Credit is subject to age, income standards, credit history, and property qualifications. Program rates, fees, terms, and conditions are not available in all states and subject to change.
²Borrowers should seek professional tax advice regarding reverse mortgage proceeds.
Contact us today for your FREE reverse mortgage loan consultation.
This material is not provided by, nor was it approved by the Department of Housing & Urban Development (HUD) or by the Federal Housing Administration (FHA). It is not intended to be a substitute for legal, tax or financial advice. Consult with a qualified attorney, accountant or financial advisor for additional legal or tax advice.
*There are some circumstances that will cause the loan to mature and the balance to become due and payable. The borrower(s) must continue to pay for property taxes and insurance and maintain the property to meet HUD standards or risk default. Credit is subject to age, minimum income guidelines, credit history, and property qualifications. Program rates, fees, terms and conditions are not available in all states and subject to change.
Retirement Mortgage Specialists
Kenny Hawthorne |
NMLS #1647665
Ken Kennedy |
NMLS #1627908
Branch Location:
605 S Orchid
White Oak, TX 75693
Phone: 903-235-7114
Powered by OC Home Loans, Inc
NMLS: 1842513
This licensee is performing acts for which a mortgage company license is required. OC Home Loans, Inc., is licensed by the Texas Department of Savings and Mortgage Lending, NMLS: 1842513. Loan approval is not guaranteed and is subject to lender review of information. All loan approvals are conditional and all conditions must be met by borrower. Loan is only approved when lender has issued approval in writing and is subject to the Lender conditions. Specified rates may not be available for all borrowers. Rate subject to change with market conditions. K2--Financial, LLC is an Equal Opportunity Mortgage Broker/Lender. The services referred to herein are not available to persons located outside the state of Texas.
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