Reverse Mortgages – A Retirement Cash Flow Option

There is a reverse mortgage loan option available through the FHA that some borrowers aren’t familiar with. The FHA HECM--Home Equity Conversion Mortgage--is an option specifically for those aged 62 or older who either own their homes outright or are close to paying off their mortgages.

According to the FHA official site, there are qualified home owners who turn to the FHA HECM program to supplement retirement income, pay off medical expenses or other costs.

The benefits of a HECM loan, according to the FHA official site are that the FHA HECM, “lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you.”

“However, unlike a traditional home equity loan or second mortgage, HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage.”

What kinds of property can a qualified borrower take out a HECM loan on? “To be eligible for the FHA HECM, your home must be a single family home or a 2-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.”

A HECM is not the same as a home equity loan, or even a second mortgage, as the FHA site points out. “With a second mortgage, or a home equity line of credit, borrowers must make monthly payments on the principal and interest.  A reverse mortgage is different, because it pays you – there are no monthly principal and interest payments. With a reverse mortgage, you are required to pay real estate taxes, utilities, and hazard and flood insurance premiums.”

HECM loans require the borrower to remain current on all property taxes and insurance as a condition of the loan. Failure to do so can result in the entire loan coming due, so it’s very important to fully understand your responsibilities under the FHA HECM program. For many this type of loan can be a big help at retirement age--ask your loan officer about the options open to you under this FHA program.

Rate this item
(3 votes)