What types of HECM Loans are available?
There are two types of Home Equity Conversion Mortgage (HECM) loans. It is important to select the one that best meets your needs.
HECM Loan
The HECM is available as either an adjustable- or fixed-rate loan. With the adjustable rate, the rate is adjusted monthly based on the LIBOR (London Inter Bank Offered Rate). The fixed-rate HECM maintains the same interest rate over the life of the loan.
HECM for Purchase Loan
The HECM for Purchase can help homeowners buy their next home without having to make monthly mortgage payments. This loan enables homeowners to use the equity from the sale of a previous residence to buy their next primary home in one transaction. Regardless of how long you live in the home or what happens to your home’s value, you only make one, initial investment (down payment) towards the purchase.
Determining Your Proceeds
The amount of funds available, also known as the Principal Limit, from a HECM loan is determined by:
- Age of the youngest borrower
- The lesser of the appraised value of your home, sale price or the FHA national lending limit
- Current interest rates
- Balance of your existing mortgage, if applicable, and all mandatory obligations as defined by the HECM requirements
The funds available to you may be restricted for the first 12 months after loan closing, due to HECM requirements. Consult your reverse mortgage advisor for detailed program terms.
Disbursement Options
With a fixed rate HECM loan, you can receive the cash in a lump sum. With an adjustable rate HECM loan, you can select:
Tenure
Equal monthly payments as long as at least one borrower lives in and continues to occupy the property as a principal residence.
Term
Equal monthly payments for a fixed period of months selected by the borrower.
Line of Credit
Unscheduled payments or installments, at any time and in an amount of your choosing until the line of credit is exhausted.
Modified Tenure
Combination of line of credit plus scheduled monthly payments for as long as you remain in the home.
Modified Term
Combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.
Lump Sum
A single payment.
Borrowers may access a minimum of 60 percent of the principal limit amount for the first 12 months after loan closing. Borrowers may be eligible to access an additional 10 percent, subject to additional HECM requirements, of the principal limit amount for the first 12 months after loan closing.
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