What is a Home Equity Conversion Mortgage (HECM)?
HECMs are the most common type of reverse mortgage and can have the following provisions:
- They can have variable or fixed interest rates.
- The maximum amount that you can borrow is limited by the value of your home, your age when the loan begins, and an overall limit set by the Federal Housing Administration (FHA).
- Reverse mortgage proceeds must be used first to pay off any existing mortgage debt on your home. If you have a large existing mortgage relative to the value of your home, the HECM may not be able to cover the existing mortgage, and you would therefore not be eligible for the loan without providing additional funds to fully pay off all mortgages.
You can receive your proceeds in a number of ways:
- In a lump sum.
- As regular payments to you for as long as you live in the home.
- As regular payments to you for a period of time that you choose.
- As a line of credit that you draw on as needed.
- Or as a combination of these options.
Before taking a HECM loan, you must speak with an independent counselor approved by the U.S. Department of Housing and Urban Development (HUD). The Counselor is not affiliated with the lender and will explain the loan’s costs, financial implications, and alternatives.
Please Note: the information in this flyer is based on an FHA HECM (Federal Housing Administration Home Equity Conversion Mortgage) mortgage product, which is a type of mortgage loan. There are fees associated with this loan as well as compounding interest. The loan is not a government benefit and must be repaid. There is no guarantee of financial security, and the consumer is responsible to pay the property taxes, homeowners insurance, and property maintenance fees independent of the loan, which can be a significant cost. The consumer faces a risk of foreclosure if they do not meet these obligations.
For more information about the FHA HECM reverse mortgage product visit:
http://portal.hud.gov/hudportal/HUD?src+program_offices/housing/sfh/hecm/hecmabout
