HECM is the acronym for a Home Equity Conversion Mortgage, which is a reverse mortgage insured and regulated by the U.S. Government Department of Housing and Urban Development. (HUD) However it is not a government loan. It is a loan that is repaid in the future when the last borrower dies or permanently leaves their residence. You or your trust remain on title.

The HECM loan is issued by a private bank, and insured by the (FHA) Federal Housing Administration, which is a department of HUD. Each year the borrower is charged an annualized insurance fee of .05% of the loan balance which accrues monthly. Your loan balance over time will increase by the amount of this fee plus the interst rate monthly. If the borrower has a HECM line of credit , the unused portion grows larger for future use by a growth rate which is currently .05% plus the lenders initial rate. The insurance purchased by this fee protects the borrower (1) if the lender is not able to make a payment; and (2) if the value of the home upon selling is not enough to cover the loan balance. In the latter case, the government insurance fund would pay off the remaining balance to the lender. It is a non -recourse loan. Currently, HECMs make up 99% of the reverse mortgages offered in America. HECMs come with rules and regulations that include the requirement that the borrower receive third-party HUD counseling.

To become eligible for a reverse mortgage, you must be at least 62 years old. A reverse mortgage is permissible only on your primary residence in order to access a portion of the equity in your home.There are no special medical requirements and borrowers always maintain title and ownership of their home. For a refinance you must have enough equity in the home to pay off any outstanding balances if any. Beginning April 2015, income and credit requirements are in place to satisfy Financial Assessment guidelines. These HUD requirements and lender guidelines are qualifying criteria so as to be certain the borrower has the ability pay their property taxes, home owners insurance and other applicable property changes. Compensating factors and extenuating circumstances are included in this assessment.

The amount of money that a lender will loan depends upon: the age of the youngest borrower at the time of closing, the lending limit/maximum claim currently $970,765 ( effective 1/1/2022) or the value of your home whichever is less, the total amount of liens, the equity in your house, and the expected interest rate. The type of reverse mortgage product and the payment options can also affect the amount of money you will receive. Thus, you borrow a factor /part of the maximum claim or home value which ever is less.

When the loan is a refinance, there are several different options to choose from. You can set up a (LOC) line of credit, take the money in a lump sum distribution, or create a monthly term or tenure payment. Every borrower has unique needs which will equally determine if they choose a fixed or adjustable rate loan (ARM).

• Tenure: equal monthly payments

• Term: equal monthly payments for a fixed period of months as decided by the borrower

• Line of Credit: payments made in installments or at various times and in amounts dictated by the borrower(s)

• Modified Tenure: monthly payments with a line of credit

• Modified Term: monthly payments for a fixed period of months with a line of credit

The costs of a reverse mortgage loan are very similar to a “forward” conventional loan. Closing costs include an appraisal and customary title and escrow fees associated with settlement. An origination fee is paid to the lender, the financed upfront mortgage insurance premium(MIP), is paid to HUD on the Home Equity Conversion Mortgage (HECM.) These fees can be financed. The HUD Counseling fee is paid directly to the interviewing agency.

Yes. HUD counseling is required to protect borrowers from receiving incorrect information about reverse mortgages. It is a mandatory consumer protection law. It is required prior to the borrower incurring any costs associated with the loan. In California, there is a 7 day cooling off period after HUD counseling and before signing a loan application. The lender must be in receipt of the counseling certificate before they can order an FHA case number, submit your loan application for processing and order the appraisal. I can provide you with an appropriate and comprehensive HUD counseling package.

No. The equity in your home is considered cash flow and not additional income. All the funds from a reverse mortgage are income tax free. (Borrowers should seek professional tax advice regarding reverse mortgage proceeds.) Although the proceeds from a reverse mortgage are not subject to personal income taxation, you should seek tax advice on how proceeds may effect government needs-based programs such as Medicaid and Medi-Cal.

Once the last surviving borrower dies, sells your home, or no longer resides there as the primary residence, you or your estate is responsible for repayment of the debt /money you received from the reverse mortgage, plus interest and other fees such as annualized mortgage insurance. Any remaining equity belongs to either you or your heirs. A “non-recourse” clause can prevent either you or your estate from owing more than the value of your home when the loan is repaid.

Yes! A growing segment of the senior population is using the HECM to purchase a home that better suits their needs. To date a qualified senior has used the HECM to eliminate debts, pay for healthcare and/or cover daily living expenses. Using the HECM to improve a financial plan as well as purchase a new primary residence is a growing trend.

The advantage of using HECM for Purchase is that the new home is purchased outright, using funds from the sale of the old home, private savings, gift money and other sources of income, which are then combined with the reverse mortgage proceeds. This home buying process leaves you with no monthly mortgage payments. This option has many beneficial reasons including downsizing, moving closer to family or friends finding a home that’s more easily navigable or securing lower overall maintenance costs. Did I say no monthly mortgage payments?