HECM is an acronym for Home Equity Conversion Mortgage. HUD insures 90% of reverse mortgages provided by US lenders. Some lenders do provide reverse mortgages outwith the control of HUD but they should be approached with utmost caution.
HUD ensures that the consumer is protected by enforcing fair terms and ensuring the consumer understands a reverse mortgage and its implications. One way that HUD does this is by holding a counseling session with the reverse mortgage applicant to talk through the implications and how they apply to him/her personally.
How can I qualify for a reverse mortgage?
The rules for getting a reverse mortgage are simple. You must own your property, be 62-years-old or over and have paid your mortgage off in full. If your mortgage has not been paid in full you can close the mortgage in the process of applying for a reverse mortgage.
Is my home safe with a reverse mortgage?
Thanks to HUD insured reverse mortgages, you can live in your home safe in the knowledge it’s yours until you die or until you decide to sell it.
How much can a reverse mortgage give me?
The amount of cash available to you depends on whether your reverse mortgage is HUD approved. HUD approved mortgages are safer and therefore entail greater restrictions than reverse mortgages not approved by HUD.
The amount of cash available through a reverse mortgage will depend on the follwing factors:
- Your age
- House value
- Property location.
The limit on HUD reverse mortgages is derived from a formula that includes your age, your home’s value and the median value of homes in your State. The maximum amounts currently range from $200,160 to $362,790.
Reverse mortgages not approved by HUD can offer as much as $417,000 but interest rates and fees are usually significantly higher.
How is the money paid out?
Once you have paid off the mortgage (if mortgage plan still incomplete) you have several options on how to receive your money. You can take the money in a lump sum; you can take monthly stipends; or you can use the reverse mortgage as a line of credit.
Reverse Mortgage Pros and Cons
Reverse Mortgage Pros
- As a senior citizen a reverse mortgage gives you access to money otherwise tied up in property.
- Reverse mortgages approved by HUD have good interest rates and loan origination fees limited to 2%.
- No payments are made on a reverse mortgage until the home is sold, either by the owner/borrower or the estate.
- If the property’s value is less than what is outstanding on the reverse mortgage, HUD will pay the difference and not heirs to the estate.
- Reverse mortgage revenue is not taxable.
- A homeowner can never be forced out of his or her home under a HUD approved reverse mortgage. As homeowner you are entitled to live in your home until you die or sell up.
- HUD will ensure you understand the implications of a reverse mortgage by arranging a counseling session with you and an approved housing counselor. If your reverse mortgage is in the form of a line of credit, whatever you do not use will earn interest equal to the reverse mortgage rate of interest.
